SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1997
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from____________________________
Commission File No. 0-21051
CAPITAL MEDIA GROUP LIMITED
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(Exact name of small business issuer in its charter)
NEVADA 87-0453100
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 RUE DU NOUVEAU BERCY
94220, CHARENTON, FRANCE
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(Address of principal executive offices) (Zip Code)
011-33-1-43-53-6999
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(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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Not Applicable None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.001 par value
Check whether the Company (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES ___ NO X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB. [ ]
State Company's revenues for its most recent fiscal year: $2,429,275
Because the Company's Common Stock has not been publicly traded on an active
basis during the preceding sixty days, the aggregate market value of the voting
stock held by non-affiliates of the Company cannot be determined with any
accuracy. As of August 31, 1998, there were 39,026,223 shares of the Company's
Common Stock issued and outstanding, of which 25,186,558 shares were owned by
non-affiliates of the Company.
The following documents are incorporated by reference: None.
Transitional Small Business Disclosure Format. YES ____ NO X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS
COLLECTIVELY TO CAPITAL MEDIA GROUP LIMITED, A NEVADA COMPANY ("CMG") AND ITS
SUBSIDIARIES: (I) UNIMEDIA, S.A. ("UNIMEDIA"), AND UNIMEDIA'S SUBSIDIARIES,
PIXEL, LTD. ("PIXEL") AND TOPCARD, S.A. ("TOPCARD") AND (II) CAPITAL MEDIA (UK)
LIMITED ("CM(UK)") BLINK TV LIMITED ("BLINK"), AND CM(UK)'S SUBSIDIARIES, BLINK
TV LIMITED ("BLINK"), ONYX TELEVISION GMBH ("ONYX") AND TINERAMA INVESTMENT AG
("TIAG").
GENERAL
The Company's primary business is the broadcasting operation of Onyx
Television GmbH ("Onyx" or "Onyx Television"), which operates an advertiser
supported music television station in Germany. Onyx Television commenced
broadcast operations in January 1996, and its broadcasting signal is currently
received in approximately 8.7 million cable homes and an indeterminate number of
satellite homes in Germany. In July 1998, the Company entered into a strategic
alliance with a subsidiary of Groupe AB, a large French television production
company, with respect to the operation and future development of Onyx
Television's business. Pursuant to the agreement between the Company and Groupe
AB, Groupe AB will provide Onyx Television with significantly all of Onyx
Television's future broadcasting requirements over the next two years and will
work closely with Onyx Television to further develop and expand Onyx
Televisions' programming in Germany. Groupe AB operates nineteen thematic
television stations which are distributed on various cable and satellite pay-TV
services in France, Switzerland and Belgium.
The agreement with Groupe AB was entered into simultaneously with an
agreement between the Company and Superstar Ventures Limited ("Superstar").
These new agreements provide the Company with $11.64 million of funding, $5.4
million in the form of cash investments to be infused over a one year period and
$6.24 million through AB providing operating services to Onyx Television over a
two year period. The new funding will be initially in the form of debt, but will
be automatically converted into equity at the rate of $0.10 per share upon and
after approval of an increase in the Company's authorized capital at the next
shareholders' meeting, which the Company is obligated to hold no later than
November 30, 1998. See Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION." In the event that shareholder approval of an increase in the
authorized common stock of the Company is not obtained, then the debt as
incurred at that date, together with interest and penalties, will become
immediately due for repayment. Once these obligations are converted into Common
Stock, Superstar and Groupe AB will control a majority of the Company's
outstanding common stock and will control the Company. See Item 12. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
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Since the Company's acquisition of Unimedia S.A. in July 1997 and the
assumption by Unimedia's executive management of the executive management of the
Company, the Company has taken decisive measures to reduce Onyx Television's
operating costs and to refocus the strategy of the group. The ownership,
development and operation of television stations and other new-media interests
require substantial capital investment. To date, the Company has financed its
capital requirements through sales of equity securities and debt financing and
the Company has experienced substantial working capital shortfalls over the last
18 months.
The Company believes that the agreements with AB and Superstar provide
the funding required to develop Onyx Television's operations more positively in
the future and allow the Company to implement a far more cost effective
broadcasting operation than would otherwise be available. The Company also
believes that these agreements provide Onyx Television with a strategic partner
with substantial experience in both television production and broadcasting and
with a partner interested in pursuing joint projects with Onyx Television (such
as teleshopping).
The Company also has interests in several other businesses: (i)
Tinerama, which operates a Romanian print media group and radio station, (ii)
Blink TV, which is a specialist TV programming company which provides lifestyle
programming on large video screens at concert events, (iii) Pixel, which
specializes in computer graphics and 3D animation for TV packaging, digital
broadcasting and special effects, (iv) TopCard, a software development business
which is engaged in the development of applications based upon smart card
technology (including remote security Internet access and infrared contactless
smart-card technology) and (iv) Unimedia, which intends to develop in the future
a software platform for Internet entertainment and gaming.
ONYX TELEVISION
PROGRAMMING
Onyx develops, acquires and exhibits on its network a variety of music
videos, interviews and topical specials that focus on a distinctive mix of jazz,
blues, classical and popular German music and current and recurrent pop and
rock. Programs are acquired from a variety of sources or, to a lesser extent,
produced internally. Acquired programming includes music videos, concert footage
and other live performance material. Such programming is supplied to Onyx by
record companies and the music industry for a variety of fees ranging from
nominal handling charges plus royalty payments for videos to negotiated license
fees for live footage. Onyx's internal productions include interviews and
topical specials that range from profiles of specific artists to genre defined
shows such as JAZZ ONYX, ONYX COUNTRY CLUB, and ONYX OVERTURE (classical). Onyx
also broadcasts infomercials on its television station.
Currently, music videos represent a substantial proportion of the
content utilized in Onyx's programming. Customarily, in the European record
industry, record companies provide the Company with music videos in exchange for
nominal handling charges plus royalty payments.
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TARGET MARKET AND DISTRIBUTION
Germany is the largest cable television market in Europe, with a
population of over 82 million people and approximately 35.0 million households.
Cable television distribution systems covered approximately 24.0 million homes
and served over 17.4 million cable subscribers as of June 30, 1998. The German
cable television market is substantially built-out. As of December 31, 1997,
cable television systems covered approximately 75% of the households in Germany.
Additionally, as of August 31, 1998, Germany had approximately 11.4 million
homes served by direct-to-home satellite-delivered television services and
satellite master antenna television systems.
As of August 31, 1998, Onyx's broadcast signal was distributed to 8.7
million cable homes in Germany, compared to 6.0 million homes as of August 31,
1997. In addition, Onyx's signal is received by an indeterminate number of homes
in Germany which are covered by direct-to-home satellite systems.
Television is the fastest growing media in Germany, with advertising
revenues having increased from DM 1.4 billion ($0.9 billion) in 1984 to DM 6.3
billion ($4.1 billion) in 1996. During this same period, television advertising
revenue as a percentage of total advertising revenue has increased from
approximately 10% in 1984 to approximately 22% in 1996. Industry sources
estimate that television advertising will nearly double to DM 11.5 billion ($7.5
billion) by 2004. Since the introduction of cable and satellite television
programming to Germany in 1984, such programming's share of television
advertising revenue has increased to approximately 90%.
The target market for Onyx's programming is persons in the 20 to 55
year old age group (the "Target Audience"). The Target Audience is believed to
be one of the largest demographic segments in Germany. The Company believes that
the Target Audience watches more television than any other demographic group in
Germany and has high purchasing power.
ADVERTISING REVENUE
Substantially all of Onyx's revenues are derived from the sale of spot
advertising time. Onyx also derives revenue from direct response advertising in
which advertisers pay Onyx based on the number of products sold as a result of a
particular commercial or as a result of an infomercial which is broadcast on the
Company's station. In addition to providing access to cable households in
general, the Company believes that Onyx will in the future be attractive to
advertisers because it offers one of the most cost effective means of reaching
the Target Audience. The Company believes that distribution, marketing and
audience qualifications, and an effective advertising sales force, are key to
achieving success in the advertising sales market.
In August 1998, Onyx entered into an agreement with a large independent
media company in Germany to act as Onyx's exclusive sales agent in Germany.
Pursuant to the agreement, which is for a four year period, the sales agent will
be paid commissions based upon the revenues derived from
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the commercials broadcast on the station. The agreement also establishes sales
objectives to be met by the sales agent on an annual basis in order for the
agreement to continue on an exclusive basis.
The demand by advertisers for advertising time on Onyx, and therefore
its operating results, are and will be affected in the future by general
economic conditions, the demographic characteristics of the audiences viewing
the Company's broadcasts, the activities of the Company's competitors, the
Company's ability to provide evidence to advertisers with regard to the size of
the Onyx Televisions' viewing audience, and other factors, as well as trends in
the advertising industry. To date, Onyx Television has not obtained a
substantial amount of advertising revenue from commercials and there can be no
assurance that Onyx Television will ever achieve sufficient levels of
advertising revenue to make the station profitable and cash flow positive.
GOVERNMENTAL REGULATION
The Company's ability to distribute Onyx Television through German
cable systems is dependent upon obtaining and thereafter maintaining the
approval of German Landes Medienanstalten (Local Media Authorities or "LMAs"),
each of which has authority to approve programming lineups for cable systems in
the 15 German regions known as "Bundeslanders" and each of whose members are
appointed by local government. Currently, Onyx Television's channel has been
granted the right or partial right to distribute programming through cable
networks located in 13 of the 15 Bundeslanders.
Because the number of channels available to a cable system is currently
limited by analog technology to 30 to 35, the success of Onyx Television is
dependent in part upon maintaining its approval and good relations with each of
the LMAs who have previously agreed to allow broadcast of Onyx Television on
their cable system (both to maintain existing distribution and to seek
additional distribution on those cable systems), and on creating a relationship
with additional LMAs in order to obtain additional distribution of Onyx
Television's programming. Since decisions on distribution are made annually by
each LMA, there can be no assurance as to the distribution which the Company
might obtain in any year and from year to year.
Television broadcast operations in Germany are subject to extensive
government regulation as to the issuance, renewal, transfer and ownership of
station licenses, the timing and content of programming, the timing, content and
amount of commercial advertising permitted and the determination of which
stations will be permitted to broadcast on a particular cable system. There are
also regulations requiring that certain percentages of programming be produced
or originated in local markets. Further, countries into which Onyx Television
may in the future seek to expand may expose Onyx Television to substantial
additional government regulation.
The types of programming which Onyx Television may broadcast and the
costs associated with any such programming could also be impacted by political
initiatives which are being taken by the European Union to increase the amount
of European-produced programming which is being broadcast. In that regard, the
German National Convention of Broadcast, based upon a recent
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application of the European Union, is expected by the end of 1998 to endorse and
authorize an increase in the time allowed for third party services such as
teleshopping from one hour per day to three hours daily. The Company believes
that if such amendment is adopted by the various LMAs whose cable systems carry
Onyx Television's station, it will have a positive effect on Onyx Television's
revenues. There can be no assurance as to the ultimate outcome of these matters
and their effect on Onyx Television.
Any change in the ownership of the Company or Onyx Television or the
addition of new shareholders who acquire a substantial interest in the Company
or Onyx Television must receive approval from the German media authorities
regarding the effect of the transaction on the ownership concentration in the
overall German television industry. The Company has made application to the
German media authorities in respect of the changes to its ownership and
operations resulting from the Company's recent agreements with Groupe AB and
Superstar and the Company expects to receive such approvals. However, the
failure of the German media authorities to approve such changes in ownership
would likely result in the suspension and/or revocation of Onyx Television's
broadcast licenses, which would have an adverse effect on the financial
condition of the Company.
COMPETITION
Among companies providing programming services via cable television in
Germany, there is intense competition for both viewers and for the right to
distribute programming over the various cable television networks throughout
Germany. A number of German cable television networks provide programming that
targets the Target Audience targeted by Onyx Television. The competition for
viewers includes broadcast television stations, satellite and wireless
programming services, radio, print media and the Internet. In connection with
its music programming, the Company competes with other broadcast operators,
which includes other music channels. Many of the Company's competitors have
significantly greater resources than the Company.
Additionally, increased competition for viewers in the German cable
industry may result from the availability of additional channels and programming
made possible by technological advances, such as digital compression technology,
which allows cable systems to expand channel capacity, the deployment of fiber
optic cable, which has the capacity to carry a much greater number of channels
than coaxial cable, and "multiplexing," in which programming services offer more
than one feed of their programming. The increased number of choices available to
the Target Audience as a result of these technological advances could impact the
number of persons watching Onyx's programming.
LONG TERM STRATEGY
The Company's operating strategy with respect to Onyx is to (i) expand
the number of regional cable networks carrying Onyx, (ii) increase advertising
revenues through growth in both sellout and the prices paid per advertisement,
(iii) launch Onyx in other European countries, (iv) continue to develop
strategic alliances/relationships in order to seek to increase Onyx's ability to
penetrate existing markets and enter new markets, and (v) if possible, syndicate
Onyx's internally
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produced programming to third-parties. There can be no assurance that these
strategies will be successfully implemented.
STRATEGIC ALLIANCES
In July 1998, the Company entered into a two-year services agreement
(the "Services Agreement") with a subsidiary of Groupe AB, which agreement by
its terms became effective on October 1, 1998, pursuant to which Groupe AB has
agreed to provide certain technical services to the Company, including, among
other services: (i) use of a transponder aboard a satellite of the EUTELSAT
type, (ii) uplink facilities, (iii) all transmission services to the cable head
ends of each of the German cable television networks over which the Company's
programming is broadcast, and (iv) use of a master control room and other
transmission facilities required to operate Onyx Television. Additionally,
Groupe AB will fund the Company $60,000 per month so that the Company may pay
the costs of transmitting its broadcast signal over telephone lines to decoders
at the cable ends.
In return for these services and this investment, Onyx will be
obligated to accrue $200,000 per month for the benefit of Groupe AB, which will
initially be debt, but will be automatically converted into Common Stock at a
conversion rate of $0.10 per share if the Company's stockholders approve an
amendment to the Company's articles of incorporation increasing the Company's
outstanding common stock, thereby allowing such shares to be converted into
shares of the Common Stock (and will be repayable in full, with penalty
interest, in the event that the Company's shareholders' do not approve such an
amendment).
In that regard, effective October 1, 1998, Onyx Television's signal
began to be broadcast on ABSAT, which is a digital satellite transponder
controlled by Groupe AB, and Groupe AB commenced providing Onyx Television with
an uplink facility and with the other services contemplated by the Services
Agreement.
Over the last year, the Company's executive management have taken
significant steps to reduce the costs associated with the operations of Onyx
Television and the strategic alliance between Onyx Television and Groupe AB is
expected to result in an annual saving of approximately $2.0 million in overhead
expenses annually from the level of operating expenses previously incurred by
Onyx. Including the anticipated cost savings associated with the services
agreement with Groupe AB, Onyx Television's annual operating costs will have
been reduced by approximately 60% from the level of such costs incurred during
1997. See Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION"
and Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company has applied to the German regulatory authorities to move
its principal television station license from Rheinland Pfalz to North Rhine
Westphalia, in order to allow the Company to take advantage of the benefits
associated with the services agreement with Groupe AB. The Company is hopeful
that it will obtain the required approvals, although there can be no assurance.
The Company also expects that the Company and Groupe AB will work together to
develop new programming opportunities for Onyx, including increased teleshopping
programming, with the goal of increasing the revenues being derived from the
operation of Onyx Television.
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On March 27, 1998, the Company, CM (UK) and Onyx entered into an
agreement (the "Sharing Agreement") with QVC Deutschland GmbH ("QVC Germany"), a
subsidiary of QVC, Inc. Under the terms of the Sharing Agreement, Onyx and QVC
Germany agreed to seek approval from the applicable German media authorities for
permission for QVC Germany to share broadcast time equally with Onyx in respect
of 5.8 million of the homes receiving the Onyx cable television broadcast and
not already receiving the QVC program. For a more detailed description of the
terms of the Sharing Agreement, see the Company's Current Report on Form 8-K
which was filed with the U.S. Securities and Exchange Commission on May 15,
1998.
At the present time, the Sharing Agreement has expired by its terms,
since the regulatory approvals required under the Sharing Agreement have not
been obtained. However the Company and QVC Germany are continuing to explore
potential ventures from which they can mutually benefit.
OTHER BUSINESSES
TINERAMA INVESTMENT AG
The Company owns a 51% interest in a holding company, Tinerama
Investment AG ("TIAG"), which, in turn, owns a 61% interest in four corporations
and a 49% interest, with an option to purchase an additional 12% for nominal
value, in a fifth corporation (such corporation is a Romanian broadcasting
company which, under Romanian law, may not be majority-owned by a non-Romanian
entity, but as to which TIAG has voting control) (collectively, the "Tinerama
Companies") having media-related operations in Romania (collectively,
"Tinerama"). The remaining 39% of each of the Tinerama Companies is owned by
Tinerama's founder, Max Banush ("Banush") and by Robert Perlitz. Banush
continues to operate the business.
Tinerama, which is headquartered in Bucharest, Romania, owns (i) seven
newspapers and periodicals with a total monthly production of approximately 1.0
million; (ii) a distribution network comprising of vans and automobiles; (iii) a
printing facility; and (iv) a radio station which broadcasts to approximately
one-third of the country.
Successive governments since the overthrow of dictatorship in Romania
have built a viable democracy, but have failed to bring the economic benefits of
the transition from communism which have been seen elsewhere in the eastern
bloc. Tinerama has recently undergone some level of reorganization in order to
stem the continuing losses from its operations. See Item 6. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." Further actions are being
considered and a review is to be undertaken as to whether the Company should
continue its involvement with Tinerama.
BLINK TV
Blink TV is a specialist TV programming vehicle which provides
lifestyle programming on large video screens at UK concert events. This
programming consists of music videos, style and fashion, and extreme sports,
which is broadcast as a 30 minute segment immediately prior to live
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performances. Blink TV has installed video screens and projection equipment at
five major UK concert venues in order to offer programming at these venues.
The Company owns a 50% joint venture interest in Blink TV. The balance
is owned by RCL Communications, which purchased its interest in Blink during
1998 from Mirror Group PLC.
In connection with its business, Blink Television must obtain the right
to broadcast its programming at rock and pop concerts and other events at the
arenas where Blink has installed its high spec audio-visual equipment. In order
to obtain these rights, Blink Television has to negotiate successfully with
promoters of events, producers and managers of artists, as well as the artists
themselves. Further, Blink Television must successfully sell advertisers on its
concept. There can be no assurance that Blink will be successful in these
efforts.
Since launching Blink in November 1986, Blink TV has already
transmitted approximately 150 hours of tailor-made programming at approximately
300 concerts in the United Kingdom and the United States. Concerts at which
Blink TV's programming has been played have included Boyzone, Sting, Bryan
Adams, 3T, Kenny G, Status Quo, the Disney Christmas Show and the Spice Girls.
Advertising deals have been concluded with a variety of companies, including
Gillette, British Telecom, Volkswagen, Volvo, Duracell, Kodak and Lee Jeans.
Notwithstanding, Blink TV has taken longer than was originally
anticipated to be accepted as a new advertising median and to become profitable.
Advertising agencies have been cautious in using Blink as an alternative to
classical advertising and some artists have been reluctant to use Blink as a
support act in their shows. Blink has been successful in completing several
concerts outside the United Kingdom, but United Kingdom returns have not been as
optimistic as hoped, and management is currently reviewing the sales and
co-ordination of events to improve results.
UNIMEDIA
On July 31, 1997, the Company acquired 50.3% of the outstanding common
stock of Unimedia in exchange for 4,333,000 shares of the Company's authorized
but unissued common stock. Shareholders of Unimedia who did not participate in
the first closing of the Unimedia share exchange (the "Unimedia Share Exchange")
had until September 5, 1997 to convert their Unimedia securities into shares of
Common Stock and on September 5, 1997, the Company acquired an additional 31.3%
of Unimedia's common stock in exchange for an additional 2,693,600 shares of the
Company's authorized but unissued Common Stock. Shares issued in the Unimedia
Share Exchange were valued at their then fair market value ($0.57 per share).
Unimedia intends to pursue the development of a software platform for
Internet gaming and entertainment. To date, in furtherance of this objective,
Unimedia has engaged the services of a consultant, SCP Valfab, which provides
the services of Jacque Dubost, a consultant to the casino industry and the
former manager of two famous casinos in Cannes, France and in Monte Carlo. Such
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business is extremely competitive and no assurance can be given that Unimedia
will be successful in entering this business.
PIXEL, LTD.
On February 12, 1998, the Company, Unimedia, and Pixel Multimedia Ltd.
("PMM") consummated the transactions contemplated by an agreement executed on
that date and effective as of January 1, 1998. PMM previously owed Unimedia
$2,700,000 for loans made to PMM and for other expenses. As part of the
transaction, Unimedia purchased the outstanding stock of Pixel Ltd., an Israeli
company ("Pixel") from PMM. Pixel specializes in computer graphic and 3D
animation for TV packaging, digital broadcasting and special effects. Pixel also
owns a 47.5% interest in Henry Communication Ltd., a service company operated in
a joint venture with Video Broadcast SB Ltd., an Israeli broadcasting company.
Pixel has, in addition, a contractual relationship with Israel Cable Programming
Company Ltd., providing TV packaging and animation programming for the cable
operators in Israel, utilizing Pixel's digital editing systems and located in
Israel Cable Programming's studio facilities. As part of the transaction, Pixel
also purchased certain software previously developed for Unimedia by PMM for use
in connection with the development of the Company's and Unimedia's proposed
entertainment and gaming software platform.
The purchase price paid to acquire Pixel consisted of: (i) forgiveness
of $1.7 million of the debt owed by PMM to Unimedia and (ii) the assumption by
Pixel (guaranteed by Unimedia and the Company) of certain PMM debt not exceeding
$750,000 due to a financial institution. Additionally, PMM may receive up to
600,000 shares of the Company's Common Stock owned by Unimedia if certain
performance objectives are achieved by Pixel. These shares have been pledged by
Unimedia to the financial institution to secure Pixel's debt to the financial
institution. Finally, the remaining $1,000,000 owed by PMM to Unimedia will be
forgiven in the event that certain future performance objectives are achieved by
Pixel. Rami Weitz, the President of Pixel, continues to work with Pixel and
Unimedia on a consulting basis.
TOPCARD, S.A.
On November 1, 1997, Unimedia acquired an 80% interest in TopCard, a
French company engaged in the design and manufacture of infra-red contactless
smart card technology. Unimedia had previously owned 10% of the outstanding
stock of TopCard and, after this transaction, Unimedia owns 90% of the
outstanding stock of TopCard. The purchase price paid by Unimedia for the 80%
interest consisted of the transfer of 456,000 shares of the Company's Common
Stock owned by Unimedia to TopCard's shareholders and $150,000 in cash.
TopCard is developing secure access smart card technology required for
processing online transactions. TopCard has agreements to export its smart card
technology and turnkey solutions to Russia and China for use in securing access
to mobile phone applications and prepaid Internet services, respectively, and is
presently in a pilot project with the European Union to develop a secure
decrementing value card system (an electronic purse).
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LONG TERM BUSINESS STRATEGY
The Company's long term strategy is to become a leading provider in
Europe of digital interactive thematic multimedia entertainment programs and
on-line services through conventional mediums, such as television and cable, and
the Internet. The Company believes that over time, it will be able to maximize
its opportunities by cross fertilizing the conventional aspects of its media
business with its proposed new media development and activities by finding
applications for its programming in new arenas (such as the Internet). One
product, for example, might be the development of a web site where persons may
view music videos and programming shown on Onyx Television. The Company also
hopes in the future to develop new television programming formats in order to
become a company at the leading edge of the convergence between television and
PC Networks. The Company also intends to pursue a strategy of seeking to provide
Onyx Television's programming through expanding digital European television
networks and seeking to expand the Onyx Television and Blink TV concepts to
other countries.
PERSONNEL
At June 30, 1998, the Company employed 76 persons, 22 of whom were
employed by Onyx Television, 24 of whom were employed by Tinerama, three of whom
were employed by Blink TV, 23 of whom are employed by Unimedia, Top Card and
Pixel, and four of whom were employed in administrative, financial and
managerial positions on behalf of the combined operation.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located in France. At the
present time, the Company intends to organize a French subsidiary, CM
Development, which shall operate as an administrative services office for the
Company in France. CM Development will share office space with Unimedia, which
leases office space in Charenton, France. Prior to May 1998, the Company's
principal executive office was located in leased office space in London,
England. Onyx Television leases administrative offices in Dortmund, Germany.
Tinerama owns a building and, in addition, leases administrative offices and
print works in Bucharest, Romania. Blink TV leases offices in London. TopCard
leases office space in Aix-en-Provence, France and Pixel leases offices in Tel
Aviv, Israel. For information regarding the Company's financial obligations
under its leases, see Note 7 to Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
CM (UK) was sued in 1995 by COM TV Production Und Vertrieb GmbH and Nen
TV Limited ("NEN"). This suit sought an interest in Onyx Television pursuant to
an alleged agreement among the parties. For information regarding this suit, see
the Company's Annual Report on Form 10-KSB for 1996 and the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1997.
In December 1997, the parties entered into an agreement to settle this
suit. As part of the settlement, Onyx agreed to pay the plaintiffs DM50,000.
Additionally, the settlement allows NEN the right to introduce a client to Onyx
within one year of the settlement to use the broadcast downtime on the Onyx
Television station. In the event that a client is introduced, that client will
be required to pay Onyx a minimum monthly fee of DM40,000, plus a 22.5%
commission on all revenues earned by such client in connection with its
broadcasts on the channel to the extent that such revenue exceeds DM222,225. In
turn, NEN will receive 25% of all amounts paid to Onyx relating to such client,
up to a maximum of DM1,500,000. To date, no client has been introduced to Onyx
by NEN.
In June 1997, a former managing director of Onyx Television whose
employment was terminated brought suit in Germany for alleged wrongful early
termination of his employment. The suit sought damages of DM750,000. Onyx
maintained that the action which it took with respect to this employee was
lawful and in July 1998, the court ruled in favor of the Onyx Television. The
plaintiff has the right to appeal and Onyx Television believes that it has valid
defenses to this claim. However, there can be no assurance as to the outcome of
this matter.
In May 1998, TV Strategies, a Dallas based television services company,
obtained a default judgment against Onyx Television for DM300,000, plus
interest, relating to services which Television Concepts alleges that they
provided to Onyx. Onyx intends to seek to have the default judgment set aside in
Texas, and believes that it has the grounds to obtain relief from the default
judgment. Onyx
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<PAGE>
Television also believes that it has meritorious defenses to the suit. There can
be no assurance as to the outcome of this matter.
In July 1998, the Company was sued in the U.S. District Court for the
District of Nevada by Fontal Limited ("Fontal") for breach of a promissory note.
Pursuant to the note, the Company owes Fontal $200,000, plus accrued but unpaid
interest. The Company had pledged the rights to international trademarks for the
Onyx name and branding outside of Germany to Fontal to secure repayment of this
note.
The Company has filed a motion to dismiss this suit for FORUM NON
CONVENIENS, believing that the proper forum for this suit is England. The
Company also believes that it has meritorious defenses to this suit and intends
to vigorously defend same. No assurance can be given as to the ultimate outcome
of this matter.
Unimedia has three minority shareholders (one of whom is the
shareholder who controls Fontal) who have previously advised Unimedia that they
do not believe that the reorganization of Unimedia with the Company was in the
best interest of Unimedia and its stockholders. These stockholders have brought
numerous legal actions against Unimedia and/or its management (which is also
now, in part, the senior executive management of the Company) contending that
the past and future activities of Unimedia are not in the best interest of
Unimedia's shareholders and were not being engaged in for the benefit of
Unimedia and its stockholders. To date, such suits have not been successful. In
addition, the French Courts have to date rejected all requests to appoint
experts in judgment to review Unimedia's management's actions.
The Company, which owns 81.6% of Unimedia, intends to operate and
continue the future development of Unimedia's business in the best interest of
Unimedia's stockholders, including the Company. Additionally, the Company
believes that the Internet business which Unimedia had previously contemplated
developing, cannot be developed without funding provided by the Company and
without other resources provided by the Company. To the extent that such
minority holders disagree with the business decisions made by Unimedia in the
future, including the use by Unimedia of funds available to Unimedia which might
be used in joint projects between the Company and Unimedia, they may bring legal
actions against Unimedia and/or its management for breach of fiduciary duties or
based upon other legal theories. Such actions, if brought, may have an adverse
impact on the Company and Unimedia. Further, any such litigation would be time
consuming and costly to Unimedia (and thereby to the Company, based upon its
ownership of an 81.6% interest in Unimedia), even if such litigation were
decided in favor of Unimedia and/or its management.
Charles Koppel, the former chairman and CEO of the Company, had a
service agreement with the Company under which he was entitled to an annual base
salary of (pound)100,000 ($160,000). The agreement provided for successive
automatic one-year terms unless terminated upon one year's prior notice in
writing. Mr. Koppel resigned his positions with the Company on August 6, 1997.
Mr. Koppel has advised the Company that he believes that the Board's selection
of a new President and
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<PAGE>
CEO of the Company in August 1997, constituted a constructive dismissal of Mr.
Koppel under his service agreement.
On March 12, 1998, the Company resolved its dispute with Mr. Koppel in
regard to his claim for wrongful dismissal. Pursuant to the settlement, the
Company agreed to pay Mr. Koppel (pound)60,000 over an agreed period of time to
resolve outstanding claims under his service agreement with the Company.
In August 1998, Onyx Television sued Mr. Koppel in Germany. The suit
alleges that certain of Mr. Koppel's actions as the managing director of Onyx
Television were improperly performed and that certain of his other actions were
taken for his own direct or indirect benefit and not for the benefit of Onyx
Television. The suit seeks damages in an unspecified amount. The Company intends
to vigorously pursue this action against Mr. Koppel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's securities holders
during the fourth quarter of 1997 or the first three quarters of 1998.
14
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TRADING MARKET FOR THE COMPANY'S SECURITIES
The Company's common stock was quoted on the NASDAQ Small Cap Market
under the symbol "CPMG" from July 1996 until June 8, 1998, when the Company's
Common Stock was delisted from the NASDAQ Small Cap Market. Since that date, the
Company's Common Stock has been quoted on the pink sheets published by the
National Quotations Bureau. The Company does not believe that there is an active
trading market for its securities at the present time.
The Company intends to seek to have its Common Stock quoted in the
Bulletin Board maintained by the NASD once the Company has brought its filings
with the U.S. Securities and Exchange Commission up to date.
The following table sets forth, for the calendar quarters indicated,
the range of high and low bid prices per share of common stock as reported by
NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996 $ $
----
Third Quarter (commencing July 25, 1996) 6 1/4 3 1/4
Fourth Quarter 3 1/4 2 3/4
1997
----
First Quarter 3 3/4 1 5/8
Second Quarter 1997 1 15/16 1 1/8
Third Quarter 1 5/8 9/16
Fourth Quarter 1 1/32 1/4
1998
----
First Quarter 21/32 5/16
Second Quarter 5/8 5/16
</TABLE>
At December 31, 1997, the Company had approximately 325 stockholders of
record. Additionally, the Company had at that date an indeterminable number of
stockholders who owned their shares in street name through brokerage firms.
Since the Common Stock is no longer to be quoted on the NASDAQ SmallCap
Market, the Company's Common Stock has become subject to certain regulations of
the Securities and Exchange Commission which impose sales practice requirements
on broker-dealers because the Common Stock
15
<PAGE>
of the Company has a market price of less than $5.00 per share. For example, in
such situation, broker-dealers selling the securities, are required, prior to
effecting any transaction, to provide their customers with a document which
discloses the risks of investing in the Company's Common Stock. Furthermore, in
such situation, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risks of transactions in the security,
which could limit the number of potential purchasers of the Company's
securities. The additional burdens imposed upon broker-dealers by such
requirements could, in the event the Common Stock were deemed to be a penny
stock, discourage broker-dealers from effecting transactions in the Common Stock
which could severely limit the market liquidity of the Common Stock.
DIVIDEND POLICY
The Company has never declared a cash dividend on its Common Stock. The
board of directors anticipates that, for the foreseeable future, earnings, if
any, will be retained for use in the business, and no cash distributions will be
made on the Company's common stock. The payment of future cash dividends, if
any, will be at the discretion of the board and will depend upon earnings,
financial requirements of the Company and such other factors as the board deems
relevant.
OTHER MATTERS
The Company intends in the near future to: (i) call a meeting of its
stockholders to seek approval of an increase in its authorized Common Stock to
permit the conversion of all of the Company's outstanding convertible debt, and
to provide the Company with sufficient authorized common stock to allow the
Company to sell additional shares to raise funds for corporate purposes in the
future, and (ii) file a registration statement to register for resale the shares
of common stock which have been sold by the Company during the last two years
and the shares underlying the Company's outstanding options, warrants and
convertible debt.
The Company has agreed to offer to one of its warrant holders the right
to subscribe to purchase 1,566,156 shares on the basis of two shares for each of
the warrants which they hold, at an exercise of $.30 per share, effective upon
the Company's shareholders approving an increase in the Company's authorized
common stock. Additionally, subject to the compliance with applicable U.S.
securities laws and the approval of an increase in the Company's authorized
common stock to allow for such action, the Company intends in the future to
offer its other warrant holders the right to exercise their warrants and receive
two shares of common stock at an exercise price of $0.30 per share.
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<PAGE>
Additionally, the Company may in the future consider taking the
following corporate actions: (i) to reverse split the Common Stock, and/or (ii)
to redomesticate the Company in a non-U.S. jurisdiction (since the Company has
no operations in the United States). To date, no actions with respect to these
matters have been taken.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-KSB, INCLUDING
THE NOTES THERETO. THIS FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED THEREBY. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACT, INCLUDED IN THIS FORM 10-KSB THAT ADDRESS ACTIVITIES, EVENTS OR
DEVELOPMENTS THAT THE COMPANY EXPECTS, BELIEVES OR ANTICIPATES WILL OR MAY OCCUR
IN THE FUTURE ARE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT ALL
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTY, INCLUDING, WITHOUT
LIMITATION, THE ABILITY OF THE COMPANY TO MAINTAIN OR INCREASE ITS DISTRIBUTION
OF ONYX TELEVISION ON GERMAN CABLE SYSTEMS, THE ABILITY TO INCREASE ONYX
TELEVISION'S ADVERTISING REVENUES, CHANGES IN COSTS OF PROGRAMMING, THE ABILITY
OF THE COMPANY TO DISTRIBUTE ONYX TELEVISION IN MARKETS OTHER THAN GERMANY, THE
ABILITY OF THE COMPANY TO DEVELOP THE SOFTWARE AND INTERNET TECHNOLOGIES HELD BY
UNIMEDIA OR PROPOSED TO BE DEVELOPED BY UNIMEDIA, AS WELL AS GENERAL MARKET
CONDITIONS AND COMPETITION. FUTURE EVENTS AND ACTUAL RESULTS, FINANCIAL AND
OTHERWISE, COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN OR CONTEMPLATED BY
THE FORWARD-LOOKING STATEMENTS HEREIN. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS HEREIN ARE REASONABLE, ANY
OF THE ASSUMPTIONS COULD BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE
THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-KSB WILL PROVE TO
BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, INCLUSION OF SUCH INFORMATION SHOULD
NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE
OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
SUMMARY FINANCIAL DATA
THE SUMMARY FINANCIAL DATA SET FORTH BELOW IS DERIVED FROM AND SHOULD
BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues...................... $ 2,075,407 $ 2,429,275
Operating costs, including exceptional
charges (1997-$4,202,737; 1996-
$497,690)............................ (18,352,988) (20,865,264)
Operating loss.......................... (16,277,581) (18,435,989)
Loss before income tax provision........ (16,313,514) (18,976,917)
Income tax provision.................... (6,623) 1,390
Net loss................................ (16,262,104) (18,871,065)
Net loss per share...................... ($1.32) ($0.67)
Weighted average shares outstanding..... 12,359,029 27,966,383
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31, 1997
---------------------
<S> <C>
Working Capital(Deficit)................... $ (9,514,501)
Current Assets............................. 2,417,272
Investments................................ 2,014,917
Intangible Assets.......................... 3,452,976
Total Assets............................... 8,905,983
Total Liabilities.......................... 11,931,773
Minority Interests in Subsidiaries......... 901,980
Stockholder's Equity....................... (3,927,770)
</TABLE>
RESULTS OF OPERATIONS (1997 VS. 1996)
The financial results include the consolidated accounts of the Company,
its wholly owned subsidiary CM(UK) and CM(UK)'s wholly owned subsidiary, Onyx
and CM(UK)'s 51% owned subsidiary, TIAG, and the Company's 81.6% owned
subsidiary Unimedia, and Unimedia's 90% owned subsidiary TopCard SA ("TopCard").
The Company's 50% joint venture investment interest in Blink TV Limited
("Blink") has been accounted for using the equity method. The results of
Unimedia and TopCard have been consolidated from September 1997 and November
1997, which are the respective dates of their acquisition. Pixel Ltd., which was
effectively acquired as of January 1, 1998, has not been consolidated into the
Company's Fiscal 1997 results.
For the fiscal year ended December 31, 1997 ("Fiscal 1997"), the
Company reported a net loss of $18.87 million, compared to a net loss of $16.26
million for the fiscal year ended December 31, 1996 ("Fiscal 1996"). The net
loss for Fiscal 1997 includes exceptional charges of $4.2 million, as follows:
(1) a $1.69 million charge to write off additional goodwill and asset
amortization, and (ii) a $2.51 million non-cash currency exchange translation
charge (Fiscal 1996-$0.5 million) arising from changes in currency exchange
rates at December 31, 1997 compared to exchange rates at December 31, 1996.
Without these write-offs and non-cash charges, the net loss for Fiscal 1997
would have been $14.67 million.
The net loss per share for Fiscal 1997 was $0.67, compared to a net
loss per share of $1.32 for Fiscal 1996. Weighted average shares outstanding
were 27,966,383 for Fiscal 1997 compared to 12,359,029 for Fiscal 1996. The
increase in the number of shares outstanding is primarily due to the Company's
private placements completed in March 1997 (12,000,000 shares) and June 1997
(7,017,543 shares), and the Company's acquisition of an 81.6% interest in
Unimedia in August 1997 (7,026,600 shares).
Operating revenues in fiscal 1997 totaled $2.43 million, a net increase
of $0.35 million compared to revenues of $2.08 million in Fiscal 1996. While
sales at Tinerama decreased 37%, from $1.80 million in Fiscal 1996 to $1.14
million in Fiscal 1997, Onyx's advertising revenue increased to
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<PAGE>
$.65 million in Fiscal 1997 from $0.28 million in Fiscal 1996. There were also
first-time revenue contributions during Fiscal 1997 from Unimedia (from
September 1997) and TopCard (from November 1997) of $0.63 million and $0.19
million, respectively.
Operating costs, including staff costs, depreciation and exceptional
items, totaled $20.87 million in Fiscal 1997, compared to $18.35 million in
Fiscal 1996. Costs of Onyx Television's operations decreased from $14.42 million
in Fiscal 1996 to $11.54 million in Fiscal 1997. Operating expenses of Onyx
include programming costs, broadcast studio expenses and transmission expenses.
There were also first-time operating costs included for Unimedia and TopCard of
$0.61 million and $0.17 million, respectively.
Depreciation and amortization for Fiscal 1997 was $0.75 million,
compared to $0.52 million for Fiscal 1996. Operating expenses-exceptional
trading expenses of $4.2 million for Fiscal 1997 included: (i) additional
charges aggregating $1.69 million relating to: (A) the write down of goodwill
and assets based upon the Company's current evaluation of the valuation of
Tinerama, and (B) the write down of goodwill based upon the Company's current
evaluation of the valuation of Unimedia and TopCard; and (ii) the $2.51 million
non-cash currency translation charge described above.
While advertising revenue at Onyx increased in Fiscal 1997, such
increase was substantially lower than was anticipated and reflects the fact that
Onyx has taken longer to establish its product in the German advertising market.
At the present time, Onyx's television station's signal reaches approximately
8.7 million cable homes and an indeterminate number of satellite homes in
Germany, an increase of 58% compared to approximately 5.5 million cable homes at
the end of 1996.
During Fiscal 1997, each of the Tinerama companies continued to
generate losses. The combined loss of the Tinerama companies for Fiscal 1997
totaled $176,000 compared to a loss of $143,000 for Fiscal 1996.
The Company's net loss for Fiscal 1997 included net profit
contributions from both Unimedia and TopCard of $0.39 million and $12,000,
respectively, which were consolidated with the Company's results from the dates
of their respective acquisitions.
For the twelve months ended December 31, 1997, Unimedia, TopCard and
Pixel had operating revenues of $0.93 million, $0.96 million and $1.99 million,
respectively, and net profit of $0.73 million, $0.08 million and $0.38 million,
respectively. Part of Unimedia's operating revenue and non-operating profit were
non-recurring items relating to a change of investment strategy pursuant to
which Unimedia has determined not to take minority positions in its future
investments and to sell off the minority positions which it currently holds.
Full-year contributions from each of these companies will be consolidated for
Fiscal 1998.
20
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The ownership, development and operation of media interests, and
particularly the operation of a television station, requires substantial capital
investment. To date, the Company has financed its capital requirements through
sales of its equity securities and through debt financing. Since inception
through December 31, 1997, the Company has incurred an accumulated deficit of
approximately $37.96 million, principally related to the Company's launch and
operation of Onyx Television. At December 31, 1997, the Company had a negative
working capital of approximately $9.5 million.
In February 1996, the Company completed a private placement of its
securities (the "First Private Placement"). The Company received net proceeds of
approximately $14.4 million in the First Private Placement. These funds, along
with capital infusions to the Company from its founding shareholders in the
amount of $3.0 million, were primarily utilized to fund the startup, launch and
first year of operation of Onyx Television, and for general corporate purposes.
In October 1996, the Company's UK subsidiary, CM (UK), entered into an
agreement to borrow US $2.0 million ("Convertible Debt" or the "Instar Loan")
from Instar Holdings, Inc. ("Instar") to fund the Company's working capital
requirements (principally related to the continuing operation of Onyx
Television). The Convertible Debt is guaranteed by the Company and Onyx and is
secured by a charge on substantially all of the Company's assets. Interest is
payable monthly on the Convertible Debt, at the rate of 2% above Lloyds Bank
base rate until December 31, 1997 and 13% per annum thereafter. The Instar Loan
has recently been renegotiated. For information regarding the historical terms
of the Instar Loan, see the Company's Annual Report on Form 10-KSB for 1996 and
the Company's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1997.
In July 1998, Instar entered into a letter agreement with the Company
reflecting the new terms of this loan, which letter agreement is currently being
more formally documented in the form of amended Instar Loan documents. In the
letter agreement, Instar agreed to a repayment schedule whereby the Company will
repay this loan at the rate of $50,000 per month commencing when the new
agreement is signed, for six months and $200,000 per month thereafter until paid
in full. The letter agreement also provides for certain prepayments to the
extent that the Company raises funds above the amounts already raised as
discussed in this Form 10-KSB. Under the terms of the new agreement, the Instar
Note will no longer be convertible, but would become convertible at Instar's
option in the future in the event that Instar agrees to convert any of the
outstanding debt at such price as the Company may agree to sell additional
shares of its common stock to a third party.
CM(UK) and the Company have also granted a charge against substantially
all of their assets to secure their obligations in connection with the guaranty
of the transponder lease. See Note 7 of Notes to Consolidated Financial
Statements with respect to the guaranty of the transponder lease by Universal
Independent Holdings Limited, a BVI corporation ("Universal"). CM(UK) under its
transponder lease, was required to provide a guaranty to PTT Telecom of its
obligations under the lease. Universal agreed to provide such guaranty, but
required, among other things, (i) that CM(UK) enter into, in favor of Universal,
a deed of counter-indemnity ("Deed") to secure the obligation of CM(UK) to repay
Universal if Universal is called upon to make payment on its transponder
guaranty, (ii) that the Company and Onyx guarantee the obligations of CM(UK)
under the Deed, and (iii) that
21
<PAGE>
the Company pledge substantially all of its assets to secure its obligations in
connection therewith. Instar and Universal have agreed that their liens on the
Company's assets shall rank PARI PASSU. If the Company were to default under
either or both of such guaranties and Instar and/or Universal were to foreclose
on the pledge of the Company's assets, it would likely have a significant and
adverse impact on the Company's financial position, and could result in the
Company's loss of its operating assets.
On March 3, 1997, the Company closed a second private placement in
which the Company raised net proceeds of $5.85 million. The funds from this
placement were used to fund the continuing operation of Onyx Television and for
general corporate purposes. The Company issued an aggregate of 12.0 million
shares of Common Stock in this private placement ($0.50 per share), including 4
million shares of Common Stock subscribed by Unimedia.
On June 25, 1997, the Company accepted a subscription for $4.0 million
from Unimedia, on behalf of certain investors. In the subscription, the Company
agreed to issue an aggregate of 7,017,543 shares of Common Stock at a purchase
price of $0.57 per share. On June 30, 1997, $1,500,000 of the proceeds of the
subscription was received by the Company and the balance of $2,500,000 was
released to the Company from escrow on July 31, 1997 at the closing of the
Unimedia Acquisition. In connection with the private placement, the Company paid
Unimedia a fee of $240,000, which was netted against the purchase price of the
Shares. Unimedia, in turn, paid a fee to Valfab, S.A. for its services in
connection with introducing Unimedia to certain of the investors who purchased
the shares in the offering. The fee consisted of $192,000 in cash and 106,666
shares of the Common Stock acquired by Unimedia in this placement.
On July 31, 1997, the Company acquired 50.3% of the outstanding common
stock of Unimedia in exchange for 4,333,000 shares of the Company's authorized
but unissued common stock. Shareholders of Unimedia who did not participate in
the first closing of the Unimedia share exchange (the "Unimedia Share Exchange")
had until September 5, 1997 to convert their Unimedia securities into shares of
Common Stock and on September 5, 1997, the Company acquired an additional 31.3%
of Unimedia's common stock in exchange for an additional 2,693,600 shares of the
Company's authorized but unissued Common Stock. Shares issued in the Unimedia
Share Exchange were valued at their then fair market value ($0.57 per share).
At the closing of the Unimedia Share Exchange, Unimedia owned 5,564,913
shares of the Common Stock. Subsequent to the closing of the Share Exchange,
Unimedia has transferred 4,496,997 of these shares to investors in private
transactions resulting in a net profit of $0.98 million in the year ended
December 31, 1997. At this date, Unimedia owns 1,067,916 shares of Common Stock.
In September 1997, the Company borrowed $500,000 of short term working
capital in the form of a convertible debt from Unbeatable Investments Limited
("Unbeatable"). The debt was payable with interest of 10% per annum in April
1998 and was convertible into shares of Common Stock at the rate of $0.57 per
share. The Company's short term funding requirements were also met
22
<PAGE>
during the fourth quarter of 1997 through private placements of an aggregate of
733,335 shares of the Company's authorized but unissued Common Stock (raising
$550,000 at $0.75 per share).
On January 9, 1998, CM(UK) borrowed an aggregate of $1,250,000 from
Superstar Ventures Limited ("Superstar"). Such loan was evidenced by two 13%
Convertible Secured Promissory Notes in the original principal amounts of
$750,000 and $500,000, respectively (collectively, the "Notes"). Of the
aggregate proceeds, $500,000 was used to repay a loan previously made to CM(UK)
(see above) by Unbeatable. The Notes bear interest at the rate of 13% per annum
and are convertible into the Company's Common Stock on the basis of one share of
Common Stock for each $0.50 of outstanding principal and accrued interest on the
Notes, provided, however, that the Notes may not be converted until the Company
has held a shareholders meeting at which its Articles of Incorporation are
amended to increase the number of authorized shares of Common Stock of the
Company to at least the number required for conversion of the Company's Series A
Preferred Stock and the Notes. The Notes were due and payable on March 31, 1998
but, pursuant to the Notes and an agreement among the Company, CM(UK),
Superstar, Instar Holdings, Inc. ("Instar") and Universal Independent Holdings
Limited ("Universal"), payments on the Notes may only be made pari passu pro
rata as and when payments are made to Instar Holdings Inc. according to a stated
proportion. Instar and Universal are secured creditors of the Company and
CM(UK). To secure its obligations under the Note, CM(UK) granted to Superstar a
security interest on the same collateral upon which Instar has been granted a
security interest by CM(UK) and upon identical terms and conditions as are set
forth in the security documents entered into between Instar and CM(UK) pursuant
to the Facility Agreement dated October 31, 1996 between CM(UK) and Instar.
Instar has also granted to Superstar a right of first refusal to purchase the
Instar Loan for the full amount due before such loan is sold to a third party.
The Company also pledged its interest in 81.6% of Unimedia to Superstar to
further secure its obligations under this Note.
Superstar and Unbeatable are parties controlled by David Ho, a Director
of the Company. Superstar received a fee of 200,000 shares of the Company's
Common Stock as a fee for arranging the original loan made by Unbeatable to the
Company and will receive a fee of 400,000 shares for arranging the January 1998
Superstar loan (which fee will be payable at such time as the Company has
authorized shares of Common Stock available to issue in order to pay this fee).
Additionally, Superstar has been granted a contingent option such that if such
loan is repaid (and not converted), Superstar shall have a one year option to
purchase up to 2.5 million shares of the Company's authorized and unissued
Common Stock at an exercise price of $.40 per share.
On March 23, 1998, MMP, SA ("MMP"), a shareholder of the Company and a
subsidiary of Groupe AB, made available to the Company a line of credit (the
"MMP Line of Credit") pursuant to which the Company may borrow up to $2,000,000.
Outstanding amounts under the MMP Line of Credit bear interest at the rate of
13% per annum. The Company has fully borrowed the proceeds available from the
MMP Line of Credit. Any outstanding principal amount and accrued interest is
payable not later than December 31, 1998, but becomes due and payable upon the
earlier of the consummation by the Company of any significant transaction or
when the Company's cash flow enables repayment. MMP may withdraw the MMP Line of
Credit at its sole discretion and without prior notice in the event that the
Company files for bankruptcy or is placed in bankruptcy by its creditors.
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<PAGE>
As further consideration for granting the MMP Line of Credit, MMP was
granted the right, until March 31, 2000, to purchase shares of authorized but
unissued Common Stock of the Company at a price of $0.20 per share up to the
aggregate outstanding principal amount of and accrued interest on the line of
credit; provided, however, that the option may not be exercised until the
Company holds a shareholders meeting to authorize additional shares of
authorized but unissued Common Stock. Such purchase would not affect the
outstanding principal amount of and accrued interest on the MMP Line of Credit.
On March 25, 1998, Superstar loaned the Company an additional $400,000,
payable on the same terms as the MMP Line of Credit. In connection with this new
loan, Superstar was granted an option to purchase shares of the Company's common
stock on the same terms as the option granted to MMP as described above.
In the new agreements with Superstar and Groupe AB, Superstar has
agreed to make available $5.0 million and Groupe AB has agreed to provide cash
and services aggregating $6.64 million over a two year period. Such funding will
initially be in the form of debt, but will be automatically converted into
equity at the rate of $0.10 per share upon and after approval of an increase in
the Company's authorized common stock. If stockholder approval of the increase
in the authorized common stock is not obtained, then the debt incurred at that
date, together with interest and penalties, will be immediately due and payable.
Once these obligations are converted into Common Stock, Superstar and Groupe AB
will control a majority of the Company's outstanding common stock and will
control the Company. The Company believes that the Superstar and Groupe AB
agreements will fund the Company's capital requirements with respect to Onyx
Television for at least 12 months.
In regard to its future capital raising efforts to fund the Company's
software and Internet related businesses, the Company is likely going to have to
fund these future capital requirements through additional sales of the Company's
equity securities. The Company may also seek funding for particular projects
through investments directly into those projects. The Company is also seeking
additional strategic alliances with respect to its other current and proposed
businesses and to reduce operating costs in all of its businesses whenever
possible. No definitive agreements have been entered into to date.
The Company maintains its financial statements in dollars and holds the
majority of its funds in United States Dollars, Pound Sterling, German Deutsche
Marks and French Francs. Amounts paid to the Company are payable in various
currencies, which are subject to independent fluctuating exchange rates with the
U.S. dollar, the pound, the Deutsche Mark and the Franc. In the event of a
devaluation in a particular currency between the time its income arises and the
time such income is received and converted by the Company into U.S. dollars, the
Company would suffer an exchange loss which could materially and adversely
affect the Company's financial condition, results of operations and/or cash
flows. The Company does not hedge against foreign currency exchange rate risks.
Because of the number of currencies involved, the constantly changing currency
exposures and the fact that all foreign currencies do not fluctuate in the same
manner against the United States
24
<PAGE>
Dollar, the Company cannot predict with any certainty the future effect, if any,
from period to period, of exchange rate fluctuations on its financial condition
or results of operations. However, such fluctuations have been materially
adverse in the past and may be materially adverse in the future.
Although the Company is a Nevada corporation, its operations are
conducted outside of the United States through subsidiaries formed under the
laws of jurisdictions other than the United States. In addition, many of the
directors and officers of the Company are not residents of the United States. As
such, the Company, its shareholders and/or investors in the Common Stock, are
subject to the risks inherent in such an operational structure including,
without limitation, the following: (i) the Company's ability to receive
dividends or other distributions from its subsidiaries being subject to, among
other things, (a) restrictions on dividends under applicable local laws and
foreign currency exchange regulations of the jurisdictions in which its
subsidiaries operate and (b) board of directors or creditor approval; (ii) it
may be difficult, if not impossible, for investors to (a) enforce, outside the
United States, judgments against the Company obtained in the United States in
any civil actions, including actions predicated upon the civil liability
provisions of the United States federal securities laws and (b) effect service
of process within the United States upon directors and officers of the Company
who are non-residents of the United States or enforce against them judgments
obtained in the United States courts, including judgments predicated upon the
civil liability provisions of the United States federal securities laws; (iii)
changes in the political or economic climate in the countries in which the
Company does business; (iv) new or changed currency controls in foreign
jurisdictions that have or may in the future be implemented which may limit or
ban completely the Company's receipt of revenues from its foreign subsidiaries;
and (v) currency exchange risks (the Company does not currently hedge against
foreign currency exchange rate risks, and does not expect to do so in the
future). The Company is also exposed to the risk of changes in foreign and
domestic laws and policies that govern operations of overseas-based companies.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company believes that the software currently being used in its
operations is either year 2000 compliant or can be upgraded to bring it into
conformity with year 2000 requirements without a material cost to the Company.
25
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Years ended December 31, 1997 and 1996
Independent Auditors' Report of Deloitte & Touche to the Board of
Directors and Shareholders of Capital Media Group Limited.....................F-2
Independent Auditors' Report of Price Waterhouse Coopers to the
Board of Directors and Stockholders of Tinerama Investment AG.................F-3
Consolidated Balance Sheet at December 31, 1997 and 1996...............................F-4
Consolidated Statement of Operations For Years Ended December 31, 1997
and 1996......................................................................F-5
Consolidated Statement of Stockholders' Equity For Years ended December 31,
1997 and 1996.................................................................F-6
Consolidated Statement of Cash Flows For the Years Ended December 31, 1997
and 1996......................................................................F-7
Notes to Consolidated Financial Statements.............................................F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
None
26
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following persons presently serve as the directors and executive
officers of the Company:
<TABLE>
<CAPTION>
NAME Age Position
- ---- --- --------
<S> <C> <C>
Gilles Assouline 42 Chairman, President, Chief Executive Officer
Michel Assouline 39 Director and Chief Operating Officer
David Ho 50 Director
Jean-Pierre Souviron 60 Director
Stanley Hollander 60 Director
Jean-Francois Klein 33 Director
Stephen Kornfeld 58 Director
Stephen Coleman 51 Chief Financial Officer
</TABLE>
Groupe AB has the right to designate two members to the Board of
Directors. Mr. Klein currently serves as Groupe AB's nominee to the Board.
CHANGES TO THE COMPANY'S MANAGEMENT
The Company's Board consists of seven members. In August 1997, in
connection with the completion of the first closing of the share exchange with
Unimedia, Gilles Assouline, the Chief Executive Officer of Unimedia, Michel
Assouline, an executive officer of Unimedia, Jean-Pierre Souviron, a director of
Unimedia and David Ho were appointed to the Board. Shortly thereafter, three
persons who were on the Board at that date, Charles Koppel, Karl Hauptmann and
James Leitner, resigned from the Board. Additionally, two directors of the
Company, Marc Sillam and Barry Llewellyn, resigned from the Board in October
1997 and September 1998, respectively.
At a Board meeting held on August 1, 1997, the newly constituted Board
of Directors elected Gilles Assouline as the Chairman, President and Chief
Executive Officer, and Michel Assouline as the Vice President and Chief
Operating Officer, of the Company.
27
<PAGE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Gilles Assouline was, along with his brother, Michel Assouline, a
founder of Unimedia in July 1995. Prior thereto, for more than five years,
Gilles Assouline was managing director of several consulting, software and media
companies. See Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Michel Assouline together with his brother Gilles Assouline founded
Unimedia in July 1995. Prior thereto, for more than five years, Mr. M. Assouline
was employed by Thomson-CSF in various executive capacities, including having
responsibility for business development at the corporate level. Prior to joining
Thompson in 1990, Mr. M. Assouline was a management strategy consultant. See
Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
David Ho is the founder of Caltex South China Investments Limited and
holds the position of Executive Vice Chairman of this petroleum firm, where he
has been employed for more than the last five years. Mr. Ho, through a private
venture capital fund, also has interests in other Asia Pacific companies with
extensive interests in manufacturing, leisure, construction, meat processing and
real estate. See Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Jean-Pierre Souviron has had an outstanding career both in French
industry and in various government positions. At various times, he held
positions as Technical Counsel to the Minister of Industry, Deputy Director for
the Minister of Foreign Affairs and Director of Industrial and International
Affairs at the Direction Generale des Telecommunications. He was, between 1978
and 1981, General Director of Industry for the French Ministry. Mr. Souviron has
previously held positions as Chairman of DB Morgan Grenfell France S.A. He is
presently the chairman and chief executive officer of a telephone company in
France that he founded. Mr. Souviron is also a member of the Board of Directors
of Cerus, Valeo and Olivetti, France.
Stanley Hollander has been a director of the Company since January
1996. Since 1993, Mr. Hollander has been an executive officer and a director of
International Capital Growth, Ltd. ("ICG"), an investment banking firm, and its
predecessors. Prior thereto, from 1989 to 1993, he was a Managing Director and
joint head of Corporate Finance at Gruntal & Co. Incorporated. Mr. Hollander
serves as a director of Specialized Health Products, Inc. See Item 12. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Jean-Francois Klein has been employed by Groupe AB for more than the
last five years and is currently Vice President and Chief Financial Officer of
Groupe AB. See Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Stephen Kornfeld is a director and was Co-Chairman of the Board of
Directors from September 20, 1996 to August 1, 1997. For the last five years,
Mr. Kornfeld has acted as an investor in and a consultant to several private
companies.
28
<PAGE>
Stephen Coleman was appointed Chief Financial Officer of the Company in
November 1996. From March 1993 until November 1996, Mr. Coleman was Director of
Finance at Lightworks Editing Systems, a United Kingdom digital editing systems
designer and manufacturer which was acquired by Tektronix, Inc. in 1995. Prior
to February 1993, Mr. Coleman served as Senior Financial Analyst at BICC PLC and
Financial Director of Bennett & Fountain Group PLC. Mr. Coleman is a Fellow of
the Association of Chartered Certified Accountants in the United Kingdom.
COMMITTEES OF THE BOARD
The Board of Directors has established Committees to assist it in the
discharge of its responsibilities. These Committees, their principal
responsibilities, and the current members of each are described below. Prior to
August 1997, the Company did not have formal Audit, Compensation or Nominating
Committees. It was considered the continuing responsibility of the whole Board
to consider matters respecting the independent public accountants, to determine
employee benefits and to recommend nominees for the Board. On August 1, 1997,
the Board of Directors created an Audit Committee and Compensation Committee of
the Board. While the Compensation Committee has to date only met once, and the
Audit Committee has to date not met, the Board intends to organize and operate
these committees during future periods.
AUDIT COMMITTEE. The Audit Committee is comprised of Messrs.
Ho and Souviron. The Audit Committee recommends the firm to be appointed as
independent accountants to audit the Company's financial statements and to
perform services related to the audit, reviews the scope and results of the
audit with the independent accountants, reviews with management and the
independent accountants the Company's year-end operating results and considers
the adequacy of the Company's internal accounting procedures.
COMPENSATION COMMITTEE. The Compensation Committee is comprised of
Messrs. Kornfeld, Ho and Souviron. The Compensation Committee reviews and
recommends the compensation arrangements for all directors and officers and
approves such arrangements for other senior level employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To the Company's knowledge, no compensation committee interlocks
currently exist between the Company's management and its directors.
BOARD COMPENSATION
Directors of the Company receive no compensation for their services as
a director. However, directors are reimbursed for travel expenses incurred in
attending meetings of the Board of Directors and its committees.
29
<PAGE>
On March 10, 1998, the Board of Directors granted certain options to
purchase an aggregate of 4,500,000 shares to purchase the Company's Common Stock
at an exercise price of $0.35 per share (the fair market value of the Common
Stock on the date of grant). Messrs. Gilles Assouline, Chairman and Chief
Executive Officer of the Company, Michel Assouline, Chief Operating Officer of
the Company, Stephen Coleman, Chief Financial Officer of the Company and Barry
Llewellyn, Vice President and a Director, of the Company, were each granted
options to purchase 1,000,000 shares of the Company's authorized but unissued
Common Stock. Of each 1,000,000 share option grant, options to purchase 200,000
shares vested immediately with the remaining options vesting in equal portions
over the next three years (in that regard, 800,000 of the options which were
issued to Mr. Llewellyn have lapsed due to his resignation from the Company in
September 1998).
Additionally, on the same date, each non-employee director of the
Company was granted 100,000 options to purchase Common Stock of the Company at
an exercise price of $0.35 per share, for each year of service on the Board of
Directors of the Company, with each non-employee director receiving a minimum of
100,000 options. An aggregate of options to purchase 500,000 shares were granted
to non-employee directors of the Company. These options vested immediately.
None of the options described in the two paragraphs above may be
exercised until the Company has held a shareholders meeting at which its
Articles of Incorporation are amended to increase the number of authorized
shares of Common Stock of the Company to at least the number required for the
issuance of shares upon exercise and/or conversion of the Company's other
derivative securities.
COMPLIANCE WITH SECTION 16(A)
At the present time, the Company's directors and executive officers are
not in compliance with their reporting obligations under Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company and its
directors and executive officers are currently working to bring the Company's
SEC filings into compliance with the Exchange Act and intend to make the
required filings under Section 16(a) in the near future.
OTHER KEY EMPLOYEES AND CONSULTANTS
Ann-Marie Assouline, age 43, has served as an executive officer of
Unimedia since its formation. Mrs. Assouline is the wife of Gilles Assouline,
the Company's Chairman, President and Chief Executive Officer.
Jacques Dubost, age 69, acts as consultant on behalf of his company,
Valfab S.C.B., for Unimedia, with respect to gaming and funding matters. Mr.
Dubost has over 40 years of experience in the gaming industry. Over that period,
Mr. Dubost owned and operated a hotel casino in Dieppe, France and managed
several other casinos, including the Monte-Carlo casino in Monaco and the Palm
Beach Casino in Cannes, France. Valfab S.C.B. has received certain commissions
for introducing the
30
<PAGE>
Company to certain of its investors. See Item 6. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION."
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation paid
or accrued during 1997 to the Company's Chief Executive Officer and to each of
the other most highly compensated executive officers of the Company whose
aggregate direct compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- ------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
NAME YEAR ($) ($) ($) (#) ($)
- ---- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Gilles Assouline 1997 104,000 -- -- 1,000,000 --
Michel Assouline 1997 83,000 -- -- 1,000,000 --
Stephen Coleman 1997 160,000 -- -- 1,000,000 --
Charles Koppel 1997 110,000 -- -- -- 100,000*
1996 160,000 -- -- -- --
Barry Llewellyn 1997 160,000 -- -- 1,000,000 --
1996 160,000 -- -- -- --
</TABLE>
- ----------
*Settlement of amount due under Services Agreement. See Item 3. "Legal
Proceedings, above.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Compensation Committee of the Board has recommended and the Board
of Directors has agreed that Gilles Assouline and Michel Assouline shall receive
a three-year employment agreement with the Company providing for them to receive
the following compensation for their services on the Company's behalf: (i)
annual base compensation of $250,000 and $200,000, respectively; (ii) such bonus
compensation as is determined by the Board in its discretion; (iii) a grant of
200,000 and 175,000 shares, respectively, of Common Stock; (iv) options to
purchase an additional 200,000 and 175,000 shares of Common Shares on the date
of grant; and (v) such benefits as are provided generally to the executive
management of the Company. The shares and options will vest 2/5 upon execution
of the agreement and 1/5 on each of the first, second and third anniversaries,
respectively, of the Agreement. The agreements are expected to provide that the
employees shall be paid one year's base compensation if they are terminated
without cause during the term of the Agreement. It is anticipated that the
agreements will be completed in the near future.
31
<PAGE>
Barry Llewellyn was a director of the Company from May 1995 until
September 1998, and was an executive officer of the Company from May 1995 until
June 1998. Mr. Llewellen had a service agreement with the Company under which he
was entitled to annual base salary of (pound)100,000 ($160,000). In connection
with his resignation as an executive officer of the Company, the Company and Mr.
Llewelyn entered into a settlement pursuant to which Mr. Llewellyn received a
payment of (pound)12,500 ($20,000) in full satisfaction of the Company's future
obligations under his service agreement and the service agreement was
canceled.
Mr. Coleman has an arrangement with the Company to serve as its Chief
Financial Officer, under which he was entitled prior to January 1, 1998 to an
annual base salary of (pound)100,000 ($160,000) and under which he is entitled
to an annual base salary of (pound)125,000 ($200,000) after December 31, 1997.
The agreement provides for successive automatic one-year terms unless terminated
upon one year's prior notice in writing.
STOCK OPTIONS AND STOCK OPTION PLAN
In March 1998, the Company granted certain stock options to its
executive officers. See Item 9. "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT-BOARD
COMPENSATION" for information regarding the terms of such stock options.
The Company intends to institute a stock option plan for its officers,
directors and key employees. The Plan will be administered by the Compensation
Committee of the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of August 31, 1998, the Company had issued 40,094,139 shares of its
Common Stock, 1,067,916 of which were owned by Unimedia. As such, at that date
there were 39,026,223 shares of Common Stock outstanding.
Additionally, Superstar and Groupe AB will receive up to 50,000,000 and
66,400,000 additional shares, respectively, of Common Stock upon the automatic
conversion of their secured convertible debt, which cannot occur until the
Company's shareholders have voted to approve an increase in the Company's
authorized common stock, of which there can be no assurance. See Item 1.
"BUSINESS-GENERAL," Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES" and Item 12.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Assuming that the Company's
shareholders vote to increase the Company's authorized common stock and as a
result the above-described debt automatically converts into Common Stock,
Superstar and Groupe AB will collectively own approximately 80% of the
outstanding Common Stock. The Company is contractually obligated to hold a
stockholders' meeting to vote on an increase in the Company's authorized common
stock on or before November 30, 1998.
32
<PAGE>
The following table sets forth, as of August 31, 1998, the share
ownership of the Company's common stock (without the effect of the conversion of
any outstanding convertible debt, since such debt cannot be converted until the
Company's shareholders approve an increase in the Company's authorized common
stock), by (i) each person who owns beneficially more than 5% of the outstanding
Common Stock; (ii) each of the Registrant's directors and named executive
officers; and (iii) all directors and executive officers as a group, is as
follows.
<TABLE>
<CAPTION>
SHARES PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------------ ------------------ ------------
<S> <C> <C>
Gilles Assouline(1)(2)(3) 3,528,000 9.0%
Michel Assouline(1)(3)(4) 0 *
David Ho(5)(6) 4,585,965 11.8%
Charles Koppel(7)(8) 2,671,000 6.7%
Stephen Kornfeld(6)(9) 775,000 2.0%
Karl Hauptmann(10) 2,241,320 5.7%
James Leitner(11) 2,066,140 5.2%
Jean-Pierre Souviron(1)(6)(12) 140,000 *
Jean-Francois Klein(1)(6)(13)(14) 1,785,000 4.6%
Stanley Hollander(6)(15) 90,000 *
Edgeport Nominees(16) 2,332,656 6.6%
Groupe AB(17) 5,000,000 13.8%
Stephen Coleman(3)(18) 100,000 *
Kestrel, S.A.(19) 2,064,262 5.9%
Directors and Executive Officers as 9,618,965 24.6%
a group (8 persons)(20)
</TABLE>
- ----------
* Less than 1%.
(1) In connection with the Unimedia Share Exchange, the Company became
obligated to issue to the former shareholders of Unimedia certain
warrants to purchase shares of the Company's common stock, as follows:
(i) warrants to purchase an aggregate of 503,852 shares at an exercise
price of $2.50 per share; (ii) warrants to purchase an aggregate of
445,433 shares at an exercise price of $3.125 per share; and (iii)
warrants to purchase an aggregate of 1,139,144 shares at an exercise
price of $4.00 per share. The Company will issue these warrants to the
former Unimedia shareholders who exchanged their shares in the Unimedia
Share Exchange in the near future.
(2) Includes shares owned of record by two entities, Diamond Productions
and Multimedia Investments ("MMI"). Mr. Assouline, the Company's
President and Chief Executive Officer, controls the power to vote and
dispose of the shares of Common Stock owned by these entities, and may
therefore be deemed to be the beneficial owner of these shares for U.S.
securities law purposes. However, the actual number of shares of Common
Stock owned by these entities and a third entity, Media Ventures (see
footnote 13 below), from which Mr. Assouline and his wife, Anne-Marie
Assouline, ultimately benefit is 2,118,281 shares (5.4%). Excludes
shares and warrants which may be issued to Mr. Assouline in the future
for his services. Additionally, the shares held by Mr. and Mrs.
Assouline
33
<PAGE>
are subject to a put aggregating 110,800 of the shares from which they
benefit. See footnotes (4) and (13) below. If the put were to be
exercised, it would reduce the Assouline family's interest in the
Company to 2,007,487 shares (5.1%).
(3) Excludes options to purchase 1.0 million shares at $.35 per share. See
Item 9. "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT-BOARD COMPENSATION"
for information regarding the terms of such stock options. Since these
options cannot be exercised until the Company's stockholders approve an
amendment to the Company's Certificate of Incorporation increasing the
Company's authorized common stock, such options are not deemed to be
beneficially owned at this date for reporting purposes.
(4) Mr. Assouline, the Company's Chief Operating Officer, ultimately
benefits from the 764,235 (2.0%) shares owned by several corporate
entities controlled by Gilles Assouline and Marc Sillam. See footnotes
(2) and (13). Mr. Assouline does not control the power to vote and
dispose of the shares owned by those entities. Excludes shares and
warrants which may be issued to Mr. Assouline in the future for his
services. Additionally, the shares held by Mr. Assouline are subject to
a put aggregating 55,413 of the shares from which he benefits. See
footnotes (2) and (13). If the put were to be exercised, it would
reduce Mr. Assouline's interest in the Company to 708,822 shares
(1.8%).
(5) Shares are owned of record by Unbeatable Investments Ltd. and
Superstar, both of which entities are controlled by Mr. Ho.
Additionally, Superstar owns certain convertible debt of the Company.
See Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION-FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES" and
Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(6) Excludes options to purchase 100,000 shares at $.35 per share. See Item
9. "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT-BOARD COMPENSATION"
for information regarding the terms of such stock options. Since these
options cannot be exercised until the Company's stockholders approve an
amendment to the Company's Certificate of Incorporation increasing the
Company's authorized common stock, such options are not deemed to be
beneficially owned at this date for reporting purposes.
(7) A portion of Mr. Koppel's shares are owned of record by Clifton
Securities Limited ("Clifton"), a corporation controlled by Mr. Koppel.
Also includes warrants to purchase 640,000 shares of Common Stock at an
exercise price of $3.125 per share.
(8) Mr. Koppel controls the power to vote and dispose of all of the shares
of Common Stock owned by Clifton. However, Mr. Koppel is the beneficial
owner of only 1,287,500 of the 1,751,080 shares of Common Stock owned
by Clifton, and of all of the 560,000 warrants owned by Clifton. The
balance are held for the account of third parties, including Messrs.
Leitner and Hauptmann.
(9) Includes: (i) 400,000 Shares of Common Stock owned by Kornfeld
Associates International, Inc. ("KAI") and options to purchase an
additional 200,000 Shares of Common Stock at an exercise price of $2.50
per share, and (ii) 140,000 shares and 35,000 warrants to purchase
shares at $4.00 per share owned by trusts of which Mr. Kornfeld is
trustee.
34
<PAGE>
(10) Owned of record by Telor International Limited ("Telor"), a corporation
controlled by Mr. Hauptmann. Includes warrants to acquire (i) 200,000
shares of Common Stock at an exercise price of $2.50 per share, (ii)
133,320 shares of Common Stock at an exercise price of $3.125 per
share, and (iii) 67,500 shares of Common Stock at an exercise price of
$4.00 per share. Excludes 62,500 shares owned by Clifton for Mr.
Hauptmann's benefit. Additionally, Mr. Hauptmann has an interest in the
Instar Loan and would receive an indeterminate number of shares on the
conversion of such debt if Instar were to receive the right to convert
such debt and were to thereafter determine, at its option, to convert
such debt into Common Stock in accordance with its terms. See Item 6.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION-FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES" for information regarding
the current status of the convertibility of the Instar Loan. See also
footnote (8).
(11) Includes warrants to purchase (i) 400,000 shares of Common Stock at an
exercise price of $2.50 per share, (ii) 266,640 shares of Common Stock
at an exercise price of $3.125 per share, and (iii) 132,500 shares of
Common Stock at an exercise price of $4.00 per share. Excludes 50,000
shares owned by Clifton for Mr. Leitner's benefit. Additionally, Mr.
Leitner has an interest in the Instar Loan and would receive an
indeterminate number of shares on the conversion of such debt if Instar
were to receive the right to convert such debt and were to thereafter
determine, at its option, to convert such debt into Common Stock in
accordance with its terms. See Item 6. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION-FINANCIAL CONDITION, LIQUIDITY AND
CAPITAL RESOURCES" for information regarding the current status of the
convertibility of the Instar Loan. See also footnote (8).
(12) Owned of record by Souviron Industrie Conseil Sarl., an entity
controlled by Mr. Souviron.
(13) Includes shares owned of record by two entities, BIMAP and Media
Venture. Mr. Klein controls the power to vote and dispose of the shares
of Common Stock owned by these entities, and may therefore be deemed to
be the beneficial owner of these shares for U.S. securities law
purposes. However, the ultimate benefit from 2,064,234 of the shares
owned of record by these entities and an entity controlled by Mr.
Assouline, MMI, is held by Claude Berda, who is also an officer,
director and principal shareholder of Groupe AB. See Item 12. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. Berda disclaims beneficial
ownership over the shares owned by BIMAP, Media Ventures, MMI and
Groupe AB. See footnote (17) below. The beneficiaries of these shares
have a put to acquire the benefit of an additional 166,240 shares. See
footnotes (2) and (4) above. If the put were to be exercised, it would
increase Mr. Berda's ultimate interest in the Company to 2,230,474
shares (5.7%).
(14) While Mr. Klein serves as executive officers of Groupe AB, he disclaims
beneficial ownership over the shares and warrants owned by Groupe AB.
See footnote (17) below.
(15) Includes warrants to purchase (i) 15,000 shares at an exercise price of
$4.00 per share, and (ii) 15,000 shares at an exercise price of $2.50
per share. Does not include shares of Common Stock and warrants owned
of record by International Capital Growth, Inc. Mr. Hollander disclaims
beneficial ownership of such securities.
(16) Edgeport Nominees holds these securities for the benefit of customers
of Townsley & Co. See Item 12. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Includes warrants to purchase 193,385 shares of Common
Stock at an exercise price of $3.125 per share, warrants to purchase
130,000 shares of Common Stock at $2.50 per share and warrants to
purchase 572,606 shares of Common Stock at $4.00 per share. Barry
Townsley, the principal of Townsley & Co. and a former director of the
Company, also owns an additional 105,000 shares of the Company's common
stock and warrants to purchase 52,500 shares of the Company's Common
stock at an exercise price of $4.00 per share. Additionally, Mr.
Townsley has an interest in the Instar Loan and would receive an
indeterminate number of shares on the conversion of such debt if Instar
were to receive the right to convert such debt and were to thereafter
determine, at its option, to convert such debt into Common Stock in
accordance with its terms. See Item 6. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION-FINANCIAL CONDITION, LIQUIDITY AND
CAPITAL RESOURCES" for information regarding the current status of the
convertibility of the Instar Loan.
35
<PAGE>
(17) Shares are owned of record by MMP, S.A. on behalf of Groupe AB.
Includes warrants to purchase 1,800,000 shares of Common Stock at an
exercise price of $4.00 per share. Messrs. Klein and Berda disclaim
beneficial ownership over the shares and warrants owned by Groupe AB.
If aggregated with the shares beneficially owned by Mr. Berda, he would
be deemed to benefit from an aggregate of 7,064,237 shares (19.4%), or
7,230,477 (19.9%) if the put is exercised. See footnotes (13) and (14)
above. Group AB also owns certain convertible debt of the Company. See
Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION-FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES" and
Item 12. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(18) Includes options to purchase 100,000 shares at $2.50 per share.
(19) Kestrel, S.A., a Switzerland based investment firm, has advised the
Company that it holds these shares of the Common Stock and warrants to
purchase additional shares of Common Stock in two nominee corporations,
Latitude Investments and Transit Securities, for the benefit of
multiple owners. Clients of Kestrel also control Universal, which has
arranged for the transponder guarantee. See Item 6. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" and Note 8 to Notes to
Consolidated Financial Statements. Kestrel has advised the Company that
it holds these securities in non-discretionary accounts and that it
does not have the power to vote or dispose of the shares of Common
Stock held by it. Kestrel has also advised the Company that no
affiliate of the Company has an interest in these securities and that
none of the beneficial owners of these securities has a five percent or
more direct or indirect beneficial interest in the Common Stock.
Includes warrants to purchase (i) 200,000 shares of Common Stock at an
exercise price of $2.50 per share, (ii) 133,320 shares of Common Stock
at an exercise price of $3.125 per share, and (iii) 67,500 shares of
Common Stock at an exercise price of $4.00 per share.
(20) Includes warrants to purchase an aggregate of 765,000 shares. Excludes
options described in footnotes (3) and (6) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, CM (UK) borrowed US $2.0 million from Instar Holdings,
Inc. (the "Instar Loan"). See Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION" for a description of the current status of the Instar Loan.
Karl Hauptmann, James Leitner and Barry Townsley, each of whom is a former
director of the Company, have interests of $200,000, $500,000 and $300,000
respectively in the Instar Loan. Additionally, Montegue Koppel, the father of
Charles Koppel, the former Chief Executive Officer of the Company, acts on
behalf of Instar in connection with the Instar Loan.
Karl Hauptmann, a former director and a more than 5% shareholder of the
Company, is a principal of Telor International Limited, which owns 49% of
Tinerama Investment AG. Mr. Hauptmann is also a director of Tinerama Investment
AG. Telor had an amount of $411,600 owing from Tinerama at June 30, 1997. Mr.
Hauptmann was a Director of the Company until August 1997.
Townsley & Co., a U.K. brokerage firm, participated in the Company's
winter 1995/96 private placement for which it received direct commissions of
$210,000, 86,665 shares of Common Stock and warrants to purchase 86,665 shares
and 218,750 shares, respectively, of Common Stock at an exercise price of $3.125
and $4.00, respectively. Barry Townsley, Managing Director of Townsley & Co.,
was a Director of the Company until January 1997.
36
<PAGE>
Stanley Hollander, a director of the Company, is Senior Vice President
and a director of International Capital Growth, Ltd. ("ICG"). The predecessor of
ICG was the placement agent in connection with the Company's winter 1995/96
private placement, for which it received direct commissions and expense
allowances of an aggregate of $1,339,000, 346,663 shares of Common Stock and
warrants to purchase 346,663 and 781,250 shares of Common Stock at an exercise
price of $3.125 and $4.00, respectively. Of these amounts, a portion of the
commissions and warrants were paid to subdistributors who participated in the
placement, including Townsley & Co. In April 1997, ICG received 93,333 shares of
Common Stock for services. Additionally, in June 1998, Mr. Hollander on behalf
of ICG agreed to continue to assist the Company in an advisory role at no
additional charge.
Groupe AB and Superstar, pursuant to their new agreements with the
Company, will become the majority shareholders of the Company. For the terms of
the Company's new agreements with Superstar and Groupe AB, see Item 1. BUSINESS
and Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The
Company's believes that the terms of these new arrangements are more favorable
to the Company than the arrangements which might be available from unrelated
third parties.
37
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1. Agreement and Plan of Reorganization, dated December 29, 1995,
by and among Cardinal Capital Corp. and the shareholders of
ECL (1).
2.2 Agreement and Plan of Reorganization ("Agreement"), entered
into effective as of March 4, 1997 by and among the Company,
Unimedia S.A., a company organized under the laws of the
Republic of France and certain shareholders of Unimedia, S.A.
(incorporated by reference from the Company's Current Report
on Form 8-K, dated March 14, 1997).
2.3 Amendment No. 1 to the Agreement, dated as of June 25, 1997
(incorporated by reference from the Company's Current Report
on Form 8-K dated June 25, 1997).
2.4 Amendment No. 2 to the Agreement, dated as of July 11, 1997
(incorporated by reference from the Company's Current Report
on Form 8-K dated July 11, 1997).
2.5 Amendment No. 3 to the Agreement, dated as of July 25, 1997
(incorporated by reference from the Company's Current Report
on Form 8-K dated July 11, 1997).
3.1 Amendment to Articles of Incorporation (incorporated by
reference from the Company's Current Report on Form 8-K, dated
December 29, 1995).
4.1 Certificate of Designations, Preferences and Rights of Series
A Preferred Stock (incorporated by reference from the
Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997).
4.2 Form of warrant issued in connection with Registrant's winter
1995/96 private placement of securities (1).
10.1 Service Agreement dated September 27, 1995, between the
Registrant and Charles Koppel (1).
10.2 Service Agreement dated September 27, 1995, between the
Registrant and Barry Llewellyn (1).
10.3 Shareholders Agreement dated November 15, 1995, among Telor
International Limited, Europa Capital Management Limited,
Tinerama Investment A.G. and the Registrant (1).
10.4 Transponder Lease between PTT Telecom BV and the Registrant
(1).
38
<PAGE>
10.5 Contract for On-Site Satellite Uplink Service between BT
Telecom (Deutschland) GmbH and the Registrant (1).
10.6 Service Agreement between Onyx Television and Wagner &
Taunusfilm Television GmbH (1).
10.7 Letter Agreement dated December 6, 1995 between Onyx
Television and Studio Dortmund (1).
10.8 Facility letter dated October 31, 1996 made between Instar
Holdings, Inc. and Capital Media (UK) Limited (2).
10.9 Debenture dated October 31, 1996 made between Instar Holdings,
Inc. and Capital Media (UK) Limited (2).
10.10 Security Assignment dated October 31, 1996 made between
Capital Media (UK) Limited and Instar Holdings, Inc. (2).
10.11 Charge Over Shares and Securities dated October 31, 1996 made
between Capital Media Group Limited and Instar Holdings, (2).
10.12 Guarantee dated October 31, 1996 made between Instar Holdings,
Inc. and the Guarantors (2).
10.13 Deed of Counter -Indemnity dated October 31, 1996 made between
Capital Media (UK) Limited and Universal Independent Holdings
Limited(2).
10.14 Side letter to the Deed of Counter-Indemnity dated October 31,
1996 from Universal Independent Holdings Limited to Capital
Media (UK) Limited (2).
10.15 Debenture dated October 31, 1996 made between Universal
Independent Holdings Limited and Capital Media (UK) Limited
(2).
10.16 Security Assignment dated October 31, 1996 made between
Capital Media (UK) Limited and Universal Independent Holdings
Limited (2).
10.17 Charge Over Shares and Securities dated October 31, 1996 made
between Capital Media Group Limited and Universal Independent
Holdings Limited (2).
10.18 Guarantee dated October 31, 1996 made between Universal
Independent Holding Limited and the Guarantors (2).
39
<PAGE>
10.19 Deed of priorities dated October 31, 1996 made between Instar
Holdings, Inc. and Universal Independent Holdings Limited and
Capital Media (UK) Limited.
10.20 Deed of priorities dated October 31, 1996 made between Instar
Holdings, Inc. and Universal Independent Holdings Limited and
Capital Media Group Limited (2).
10.21 Form of Indemnification Agreement dated July 31, 1997, by and
between the Company and Gilles Assouline and Michel
Assouline.*
10.22 Reserved
10.23 Letter Agreement, dated July 1998, between the CM (UK), the
Company, Onyx, Superstar and Instar.*
10.24 Services Agreement between Onyx Television and Groupe AB.*
10.25 Superstar Note in the face amount of $5.0 million.*
10.26 Groupe AB Note in the face amount of $6.64 million.*
21.1 Subsidiaries.*
27.1 Financial Data Schedule*
- ----------
* filed herewith
(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
(b) REPORTS ON FORM 8-K
(i) A Current Report on 8-K was filed on May 15, 1998 reporting
certain information under Item 5 of Form 8-K (Other Events).
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it caused this Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized, on the
14th day of October, 1998.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
---------------------------------------
Gilles Assouline, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Annual
Report has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ GILLES ASSOULINE
- ------------------------------------------- Chairman, President and Chief October 14, 1998
Gilles Assouline Executive Officer (Principal
Executive Officer)
/s/ MICHEL ASSOULINE
- ------------------------------------------- Director, Chief Operating Officer October 14, 1998
Michel Assouline
/S/ STEPHEN COLEMAN
- ------------------------------------------- Chief Financial Officer (Principal October 14, 1998
Stephen Coleman Financial Officer)
/S/ DAVID HO
- ------------------------------------------- Director October 14, 1998
David Ho
/S/ JEAN-PIERRE SOUIRON
- ------------------------------------------- Director October 14, 1998
Jean-Pierre Souviron
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STANLEY HOLLANDER
- ------------------------------------------- Director October 16, 1998
Stanley Hollander
/S/ JEAN-FRANCOIS KLEIN
- ------------------------------------------- Director October 14, 1998
Jean-Francois Klein
/s/ STEPHEN KORNFELD
- ------------------------------------------- Director October 16, 1998
Stephen Kornfeld
</TABLE>
S-2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report of Deloitte & Touche to the Board of
Directors and Shareholders of Capital Media Group Limited.................................F-2
Independent Auditors' Report of Price Waterhouse Coopers to the Board of
Directors and Stockholders of Tinerama Investment AG......................................F-3
Consolidated Balance Sheet at December 31, 1997 and 1996.......................................F-4
Consolidated Statement of Operations For Years Ended December 31, 1997 and 1996................F-5
Consolidated Statement of Stockholders' Equity For Years ended December 31, 1997
and 1996............................................................................F-6
Consolidated Statement of Cash Flows For the Years Ended December 31, 1997
and 1996............................................................................F-7
Notes to Consolidated Financial Statements.....................................................F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CAPITAL MEDIA GROUP LIMITED
We have audited the accompanying consolidated balance sheet of Capital
Media Group Limited and its subsidiaries ("the companies") as of December 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Tinerama Investments AG (a consolidated subsidiary), which
statements reflect total assets constituting 17% of consolidated total assets at
December 31, 1997 (1996 - 37%) and 1% of consolidated operating loss for the
year then ended (year ended December 31, 1996-1%). These statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Tinerama Investment AG, is
based solely on the report of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom, which are similar to those in the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the companies at December
31, 1997 and 1996 and the results of their operations and their cash flows for
the years ended December 31, 1997 and 1996 in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in note 2 to the
financial statements, the company's lack of cash being generated by trading and
the uncertainty over its ability to raise further funds raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in note 15. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
As discussed in note 11 to the financial statements, the outcome of
certain litigation against the company is unknown at this time.
DELOITTE & TOUCHE
Chartered Accountants
London, England
14 October 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
TINERAMA INVESTMENT AG
We have audited the financial statements of Tinerama Investment AG
Group of Companies as of December 31, 1997. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with Generally Accepted Auditing
Standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
As set out in note 15, the company has a claim for an additional 10% of
the share capital of the Romanian subsidiaries at zero consideration. Prior to
the final resolution of this matter, this potential additional ownership has not
been reflected in the financial statements of the company.
In our opinion, subject to the matter mentioned in the preceding
paragraph, the financial statements referred to above present fairly, in all
material respects, the financial position of Tinerama Investment AG Group of
Companies as at December 31, 1997 and December 31, 1996 and the results of its
operations and its statement of changes in financial position for the year ended
31 December, 1997 in conformity with United States Generally Accepted Accounting
Principles.
COOPERS & LYBRAND
Bucharest September 18, 1998
F-3
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
NOTE 1997 1996
---- ------------ ------------
<S> <C> <C> <C>
$ $
ASSETS
Cash and cash equivalents 359,695 320,070
Accounts receivable within one year, net of allowances for
doubtful accounts of $11,788 (December 31, 1996 - 3 1,207,398 754,103
10,399)
Inventories 25,660 38,455
Amounts due from shareholder 4 313,691 313,691
Prepaid expenses and deposits 510,828 1,168,145
-------------- ---------------
TOTAL CURRENT ASSETS 2,417,272 2,594,464
Investments 2,014,917 217,213
Intangible assets, net of accumulated amortization of
$2,203,973 (December 31, 1996 - $262,536) 5 3,452,976 803,821
Property, plant and equipment, net 6 1,020,818 1,475,284
------------- --------------
TOTAL ASSETS 8,905,983 5,090,782
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 4,377,812 1,378,801
Accrued expenses 2,710,780 2,310,261
Loans repayable within one year 7 4,229,008 2,016,568
Amounts due to minority shareholders 614,173 411,600
-------------- -------------
TOTAL LIABILITIES 11,931,773 6,117,230
COMMITMENTS AND CONTINGENCIES 8 - -
MINORITY INTEREST IN SUBSIDIARIES 901,980 615,795
-------------- ---------------
12,833,753 6,733,025
STOCKHOLDERS' EQUITY
Preferred stock - 5,000,000 shares authorized:
$0.001 par value: no shares issued and outstanding - -
Common stock - 50,000,000 shares authorized:
$0.001 par value 35,094,139 (December 31, 1996 -
12,663,328) issued and outstanding 40,090 12,663
Additional paid in capital 31,155,909 17,117,651
Subscriptions receivable (5,000) (5,000)
Cumulative translation adjustment 2,846,067 326,214
Accumulated deficit (37,964,836) (19,093,771)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY (3,927,770) (1,642,243)
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 8,905,983 5,090,782
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
NOTE 1997 1996
---- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ $ $ $
Operating revenues 2,429,275 2,075,407
Operating costs:
Staff costs 3,754,124 3,705,972
Depreciation and amortization 747,876 521,069
Operating expenses - exceptional 9 4,202,737 497,670
Operating expenses - other 12,160,527 (20,865,264) 13,628,277 (18,352,988)
-------------- -------------- ----------- -------------
Operating loss (18,435,989) (16,277,581)
Other (expenses)/income (44,684) 42,531
Equity in net loss of unconsolidated
company (251,550) (211,414)
Interest (paid)/income, net (244,694) 132,950
--------------- -------------
Loss before income tax provision (18,976,917) (16,313,514)
Income tax credit/(provision) 10 1,390 (6,623)
--------------- -------------
Loss after taxation (18,975,527) (16,320,137)
Minority interest 104,462 58,033
--------------- -------------
Net loss (18,871,065) (16,262,104)
=============== =============
Net loss per share ($0.67) ($1.32)
=============== =============
Weighted average shares outstanding 27,966,383 12,359,029
=============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED ADDITIONAL CUMULATIVE
DECEMBER 31, PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
1997 COMMON STOCK CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
- ---- ------------ ------- ---------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SHARES $ $ $ $ $ $
Balance at 12,663,328 12,663 17,117,651 (5,000) 326,214 (19,093,771) (1,642,243)
(January 1, 1997)
Issuance of 27,430,811 27,427 14,038,258 - - - 14,065,685
common stock
Translation - - - - 2,519,853 - 2,519,853
adjustment
Net loss - - - - - (18,871,065) (18,871,065)
---------- ------ ---------- ------- --------- ------------ -------------
Balance at 40,094,139 40,090 31,155,909 (5,000) 2,846,067 (37,964,836) (3,927,770)
December 31, 1997 ========== ====== ========== ======= ========= ============ =============
YEAR ENDED ADDITIONAL CUMULATIVE
DECEMBER 31, PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
1996 COMMON STOCK CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
- ---- ------------ ------- ---------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SHARES $ $ $ $ $ $
Balance at 9,326,664 9,327 10,309,314 (5,000) (59,963) (2,831,667) 7,422,011
(January 1, 1996)
Issuance of 3,336,664 3,336 6,808,337 - - - 6,811,673
common stock
Translation - - - - 386,177 - 386,177
adjustment
Net loss - - - - - (16,262,104) (16,262,104)
---------- ------ ---------- ------- --------- ------------ -------------
Balance at 12,663,328 12,663 17,117,651 (5,000) 326,214 (19,093,771) (1,642,243)
December 31, 1996 ========== ====== ========== ======= ========= ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (18,871,065) (16,262,104)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,438,829 521,069
Equity in net losses of investment in joint venture 251,550 211,414
Minority interest (104,462) (58,033)
Changes in assets and liabilities:
Decrease in inventories 12,795 41,959
Increase in accounts receivable (453,295) (232,991)
Increase in amount due from shareholder - (313,691)
Decrease/(increase) in prepaid expenses and deposits 657,317 (882,883)
Increase in accrued expenses and accounts payable 3,399,530 2,252,550
Increase/(decrease) in amounts due to minority
shareholders 202,573 (288,786)
-------------- ------------
NET CASH USED IN OPERATIONS (12,466,228) (15,011,496)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (355,778) (501,396)
Acquisition of intangible assets (4,277,740) (180,444)
Proceeds on the sale of investments (1,658,607) (393,822)
-------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (6,292,125) (1,075,662)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 14,924,892 7,181,673
Commission paid on issuance of shares (859,207) (370,000)
Loans 2,212,440 2,000,000
-------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,278,125 8,811,673
-------------- ------------
NET (DECREASE) IN CASH (2,480,228) (7,275,485)
Effect of exchange rate movements on cash 2,519,853 58,418
Cash and cash equivalents at start of year 320,070 7,537,137
-------------- ------------
Cash and cash equivalents at end of year 359,695 320,070
============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:
Cash payments for interest 111,285 33,334
Cash paid for taxes 1,881 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles in the United States of
America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Capital
Media Group Limited ("the Company") and its wholly owned subsidiaries
Capital Media (UK) Limited ("CM(UK)"), and Onyx Television GmbH
("Onyx"), its 51% owned subsidiary Tinerama Investment AG
("Tinerama")"), together with the Company's 81.6% owned subsidiary
Unimedia SA ("Unimedia") and Unimedia's 90% owned subsidiary TopCard SA
("TopCard"). CM(UK)'s 50% joint venture investment interest in Blink TV
Limited ("Blink") has been accounted for using the equity method, after
the elimination of all significant intercompany balances and
transactions.
The results of Unimedia and TopCard has been consolidated in the
consolidated financial statements from September 1997 and November
1997, respectively, being the dates of their acquisition.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost and
market value.
INTANGIBLE ASSETS
Intangible assets represent purchased broadcast licenses, and goodwill
arising on acquisition of subsidiary undertakings. The amounts in the
balance sheet are stated net of the related accumulated depreciation.
Intangible assets and goodwill are amortized on a straight-line basis
over a period of five years. The Company evaluates the possible
impairment of long-lived assets, including intangible assets, whenever
events or circumstances indicate that the carrying value of the assets
may not be recoverable, by comparing the undiscounted future cash flows
from such assets with the carrying value of the assets. An impairment
loss would be computed based upon the amount by which the carrying
amount of the asset exceeds its fair value at any evaluation date.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are all stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of
the assets as shown below:
Buildings 25 to 50 years
Fixtures, fittings and equipment 5 to 20 years
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign subsidiaries in the
United Kingdom and Germany are translated at year end exchange rates.
The effects of these translation adjustments are reported in a separate
component of shareholders' equity. Exchange gains and losses arising
from transactions denominated in a currency other than the functional
currency of the entity involved are included in net income.
Assets and liabilities of the Company's foreign subsidiary in Romania
are translated at historical exchange rates in accordance with the
temporal method. This is due to the hyper-inflationary situation in
Romania.
INCOME TAXES
Full provision is made for all deferred tax liabilities. Deferred
income tax assets are recognized for deductible temporary differences
and net operating losses, recognized by a valuation allowance if it is
more likely than not that some portion of the benefit will not be
recognized.
LEASE
Operating leases are charged to the statement of operations in equal
annual amounts over the term of the lease.
INCOME PER SHARE
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which requires
presentation of basic and diluted income per share on the face of the
Consolidated Statements of Operations. Basic income per share is
calculated on the basis of weighted average outstanding shares, after
giving effect
F-8
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
to preferred stock dividends. Diluted income per share is computed on
the basis of weighted average shares outstanding common shares, plus
equivalent shares assuming exercised stock options and conversion of
outstanding convertible securities where issued. All income per share
disclosures have been restated in accordance with SFAS No. 128.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments, including cash,
receivables, accounts payable, and other accrued liabilities,
approximate the amount recorded in the balance sheet because of the
relatively short-term maturities of these financial instruments. The
fair value of bank, insurance company and other long-term financing at
December 31, 1997 approximate the amounts recorded in the balance sheet
based on information available to the Company with respect to current
interest rates and terms for similar debt instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 year end balances
to conform to the 1997 year end presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
APPROVED ACCOUNTING STANDARDS NOT YET ADOPTED
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
These statements are required to be adopted in fiscal 1999. In 1998,
the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This statement is also required to
be adopted in fiscal 1999. In 1998, the FASB also issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement is required to be adopted in fiscal 2000. The Company is
currently in the process of evaluating the impact of adopting these new
statements.
2. GOING CONCERN
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the years ended December 31, 1997
and 1996, the Company incurred net losses of $18,871,065 and
$16,262,104, respectively. At December 31, 1997, the Company had net
current liabilities of $9,514,501 and its total liabilities exceeded
its total assets by $3,025,790. These factors among others may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As
described in note 14, the Company's continuation as a going concern is
dependent upon its ability to obtain additional financing or
refinancing as may be required, and ultimately to attain successful
operations. Management reported in July 1998 that it had entered into
agreements to provide funding so that the Company can meet its
obligations and sustain operations from sources described in note 15.
F-9
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Accounts receivable within one year comprise:
Trade receivables 593,589 139,059
Taxation receivables 449,167 116,801
Other debtors receivable 164,642 498,243
----------- -----------
Total 1,207,398 754,103
=========== ===========
</TABLE>
4. AMOUNT DUE FROM SHAREHOLDER
In December 1995, the Company issued shares to a shareholder in
exchange for that shareholder guaranteeing the establishment of a
contract with PTT Telecom. This resulted in the shareholder receiving
shares for no payment. The directors believe this amount to be
recoverable within one year.
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Purchased broadcast licenses 246,810 364,969
Computer Software 195,016 113,371
Goodwill 5,215,123 588,017
----------- -----------
5,656,949 1,066,357
Less accumulated amortization (2,203,973) (262,536)
----------- -----------
3,452,976 803,821
=========== ===========
</TABLE>
F-10
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Property, plant and equipment consists of:
Buildings 191,550 191,550
Fixtures, fittings and equipment 2,089,649 1,817,170
----------- -----------
Total property, plant and equipment 2,281,199 2,008,720
Less accumulated depreciation (1,260,381) (533,436)
----------- -----------
1,020,818 1,475,284
=========== ===========
</TABLE>
7. LOANS REPAYABLE WITHIN ONE YEAR
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Loans repayable within one year comprise:
Instar Holdings Ltd 2,000,000 2,000,000
Unbeatable Investments Ltd 500,000 -
Fontal Ltd 200,000 -
Oradea 500,000 -
Roland Pardo 500,000 -
Falcon Management 335,000 -
Interest Accrued 194,008 16,568
----------- ------------
4,229,008 2,016,568
----------- ------------
</TABLE>
The terms of the loans are:
The terms of the Instar loan are detailed in Note 14.
The Unbeatable loan was received on October 10, 1997 and carried an
interest rate of 10% per annum and was repaid on January 9, 1998, see Note
15.
The Fontal loan was received on December 30, 1997 and carries an interest
rate of 10% per annum and was repayable on February 16, 1998, see Note 11.
F-11
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
The Oradea loan was made to Unimedia in 1996 and carries an interest rate
of 2% above 3 month Eurodollar Libor rate and repayable on April 17, 1998.
The Roland Pardo loan was made to Unimedia in 1996 and carries an interest
rate of 2% above 3 month Eurodollar Libor rate and was repayable on July
29, 1998.
The Falcon loan was made to Unimedia in 1995 and carried an interest rate
of 0.5% per month and was repaid on May 25, 1998.
8. COMMITMENTS AND CONTINGENCIES
TRANSPONDER
A bank guarantee was originally provided to PTT Telecom on November 30,
1995 in the amount of ECU 2,000,000 in relation to an agreement to lease
transponder capacity in order to broadcast a television channel in
Germany. The guarantee required as at December 31, 1997 stood at ECU
1,250,000 ($1,350,000 at December 31, 1997 exchange rates).
The Company was not in a position to support the guarantee. As a result
the guarantee has been provided by Universal Holdings Limited, See Note 11
to the Consolidated Financial Statements.
The Company is committed under the terms of the agreement to paying ECU
2,163,000 ($2,336,000 at December 31, 1997 exchange rates) over the
remaining period of the contract which expires on September 25, 1998 for
use of the transponder capacity under the terms of the agreement.
COMMITMENTS
In March 1998, the Company entered into a monthly agreement to lease
offices, as well as the use of studio, post production and editing
facilities in Dortmund, Germany, as required. Under the terms of the
office agreement, the Company was committed to paying DM150,000 ($80,000
at December 31, 1997 exchange rates) per annum.
In January 1996, the Company entered into an agreement to lease master
control and broadcast equipment and editing facilities at Ingleheim
Germany. Under the terms of the agreement the Company was committed to
paying DM 2,940,000 ($1,635,000 at December 31, 1997 exchange rates) per
annum for the use of the equipment and facilities until January 2001.
Under the terms of the lease, the lease can be terminated effective
October 1998. Notice of termination of the lease has been given to the
lessor.
In January 1996, the Company entered into an agreement to lease uplink
capacity until January 2001, at a cost of approximately (pound)245,000
($403,000 at December 31, 1997 exchange rates) per annum. Under the terms
of the agreement, the lease can be terminated effective October 1998.
Notice of termination of the lease has been given to the lessor.
The Company has also entered into leases for office space in France,
expiring between 1999 and 2002 at an annualized cost of approximately
$130,000 (at December 31, 1997 exchange rates). The total rental expense
in 1997 and 1996 were $5,592,000 and $4,190,000, respectively.
The Company is committed to pay to its directors and officers under
employment agreements an aggregate of $650,000 during the year ended
December 31, 1998.
F-12
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
9. OPERATING EXPENSES - EXCEPTIONAL
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Currency translation difference on foreign
currency net investment 2,511,784 497,670
Additional depreciation and amortization charges
relating to the Company's current evaluation of
the value of certain assets and goodwill 1,690,953 -
------------ ----------
4,202,737 497,670
============ ==========
</TABLE>
10. INCOME TAXES
The income tax provisions consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Current tax credit/(expense) 1,390 (6,623)
===== =======
</TABLE>
Net operating loss carry forwards which give rise to deferred tax assets
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
$ $
<S> <C> <C>
Unutilized tax losses 4,180,000 4,757,000
Valuation Allowances (4,180,000) (4,757,000)
----------- -----------
Total deferred tax assets - -
=========== ===========
</TABLE>
The valuation allowance relates to deferred tax assets established under
Statement of Financial Accounting Standard No. 109 and relates to the
unutilized tax losses. These unutilized tax losses, substantially all of
which do not expire, will be carried forward to future years for possible
utilization. Because the Company has not yet achieved profitability, it
has not recognized the benefit for these unutilized tax losses in the
financial statement.
11. LITIGATION
The litigation against Com TV Production und Vertrieb GmbH ("Com") and Nen
TV ("Nen") and Mr. John Garman, relates to an agreement in 1995, wherein
the Company was purportedly to invest in and develop a satellite
broadcasting project and was thereby to allot Nen 5% of the issued share
capital of the project in consideration for various undertakings. The
Company has always maintained that there had been a repudiatory breach of
contract by Com and Nen and that the Company believed that the claims made
were without merit and intended to vigorously contest the same.
F-13
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
In December 1997, at the direction of the trial judge, the Company and Com
and Nen and John Garman were directed to either come to an agreement or
that the parties were instructed to prepare for the case to be immediately
held for trial. An agreement to settle this suit was made with Garman on
December 12, 1997 wherein the Company agreed to enter into reciprocal
commercial agreements allowing Garman to access available down time for
advertising purposes.
In June 1997, a former managing director of Onyx Television whose
employment was terminated brought suit in Germany for alleged wrongful
early termination of his employment. The suit sought damages of DM750,000.
Onyx maintained that the action which it took with respect to this
employee was lawful and in July 1998, the court ruled in favor of Onyx
Television. The plaintiff has the right to appeal and Onyx Television
believes that it has valid defenses to this claim. However, there can be
no assurance as to the outcome of this matter.
In May 1998, TV Strategies, a Dallas based television services company,
obtained a default judgment against Onyx Television for DM300,000, plus
interest, relating to services which Television Concepts alleges that they
provided to Onyx. Onyx intends to seek to have the default judgment set
aside in Texas, and believes that it has the grounds to obtain relief from
the default judgment. Onyx Television also believes that it has
meritorious defenses to the suit. There can be no assurance as to the
outcome of this matter.
In July 1998, the Company was sued in the U.S. District Court for the
District of Nevada by Fontal Limited ("Fontal") for breach of a promissory
note. See Note 7 for a description of the Fontal Note. The Company had
pledged the rights to international trademarks for the Onyx name and
branding outside of Germany to Fontal to secure repayment of this note.
The Company has filed a motion to dismiss this suit for FORUM NON
CONVENIENS, believing that the proper forum for this suit is England. The
Company also believes that it has meritorious defenses to this suit and
intends to vigorously defend same. There can be no assurance as to the
outcome of this matter.
Unimedia has three minority shareholders (Oradea, Roland Pardo and Fontal
(see note 7)) who have previously advised Unimedia that they do not
believe that the reorganization of Unimedia with the Company was in the
best interest of Unimedia and its stockholders. These stockholders have
brought numerous legal actions against Unimedia and/or its management
(which is also now, in part, the senior executive management of the
Company) contending that the past and future activities of Unimedia are
not in the best interest of Unimedia's shareholders and were not being
engaged in for the benefit of Unimedia and its stockholders. To date, such
suits have not been successful. In addition, the French Courts have to
date rejected all requests to appoint experts in judgment to review
Unimedia's management's actions.
Charles Koppel, the former chairman and CEO of the Company, had a service
agreement with the Company under which he was entitled to an annual base
salary of (pound)100,000 ($160,000). The agreement provided for successive
automatic one-year terms unless terminated upon one year's prior notice in
writing. Mr. Koppel resigned his positions with the Company on August 6,
1997. Mr. Koppel has advised the Company that he believes that the Board's
selection of a new President and CEO of the Company in August 1997,
constituted a constructive dismissal of Mr. Koppel under his service
agreement.
On March 12, 1998, the Company resolved its dispute with Mr. Koppel in
regard to his claim for wrongful dismissal. Pursuant to the settlement,
the Company agreed to pay Mr. Koppel (pound)60,000 over an agreed period
of time to resolve outstanding claims under his services agreement with
the Company.
In August 1998, Onyx Television sued Mr. Koppel in Germany. The suit
alleges that certain of Mr. Koppel's actions as the managing director of
Onyx Television were improperly performed and that certain of his other
actions were taken for his own direct or indirect benefit and not for the
benefit of Onyx Television. The suit seeks damages in an unspecified
amount. The Company intends to vigorously pursue this action against Mr.
Koppel.
The Company is a party to legal actions in the normal course of business.
The Company does not believe that the resolution of any of these actions
will be material to the financial statements.
12. TINERAMA
Tinerama has an option to acquire up to a further 10% of the total issued
shares of each of its 51% owned Romanian subsidiary companies for a price
of Lei 1,000,000 ($145 at December 31, 1997) The option was valid for a
period of six months from the date of finalization of the 1995 financial
statements of the Romanian subsidiaries on June 7, 1996. TIAG has formally
confirmed its intention to exercise its option to acquire the full 10%.
F-14
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
13. WARRANTS
The Company has the following warrants (all of which expire 36 months from
the date of their effective future registration) outstanding at December
31, 1997:
DESCRIPTION NUMBER
----------- ------
Warrants for common stock exercisable at $4.00 5,200,000
Warrants for common stock exercisable at $3.125 2,033,328
Warrants for common stock exercisable at $2.50 2,300,000
The warrants were issued in connection with a Private Placement Offering
("the Offering") which took place in December 1995 and January 1996.
Warrants to purchase 4,200,000 and 1,000,000 shares of common stock at
exercise prices of $4.00 and $2.50 per share were issued to investors in
the Offering; warrants to purchase 1,000,000 and 433,328 shares of common
stock at exercise prices of $4.00 and $3.125 per share respectively were
issued to the placement agent and sub-distributors for the Offering; and
warrants to purchase 1,600,000 and 1,200,000 shares of common stock at
exercise prices of $3.125 and $2.50 respectively were issued to certain of
the founding shareholders; and
In September 1996, 100,000 shares and warrants to purchase an additional
100,000 shares at an exercise price of $2.50 per share were issued to a
director for consulting services.
On March 10, 1998, the Board of Directors granted certain options to
executive officers of the Company to purchase an aggregate of 4,500,000
shares to purchase the Company's Common stock at an exercise price of
$0.35 per share (the fair market value of the Common Stock on the date of
grant). On the same date the non-employee Directors were granted certain
options to purchase an aggregate of 500,000 shares to purchase the
Company's Common stock at the same price. The options vest for executive
officers over 3 years and for non-employee Directors immediately.
14. LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use its cash reserves to fund its operations.
The ownership, development and operation of media interests, including the
Onyx television station requires substantial funding. Due to the poorer
than expected advertising revenues at Onyx in its second year of
operation, the funds raised by the Company since commencement were
expended earlier than anticipated. To date the Company has historically
financed itself through sales of equity securities and debt financing.
On January 13, 1997, the Company issued a Private Placement Memorandum
offering its securities to accredited investors including to all existing
shareholders. In the offering, the Company sold an aggregate of 12,000,000
shares of common stock; $.001 par value per share, at a purchase price of
$0.50 per share. On March 3, 1997, the offering closed and the aggregate
net proceeds to the Company were approximately $5,850,000 after costs.
On June 30, 1997, the Company received subscriptions for $4 million in a
Private Placement offering of its securities to certain accredited
investors. In the offering, the Company agreed to issue an aggregate of
7,017,543 shares of common stock; $.001 par value per share, at a purchase
price of $0.57 per share. On June 30, 1997, $1,500,000 of the proceeds of
the subscription was received and the balance of $2,500,000 was received
on August 1, 1997.
On October 31, 1996, CM (UK) entered into an agreement to borrow up to
$2.0 million from Instar Holdings, Inc. ("Instar") to fund working capital
requirements ("the Instar loan"). The loan was originally due for
repayment on December 31, 1996 or such earlier date as the Company raises
additional funds to repay the loan. The loan is guaranteed by the Company
and Onyx, and is secured by a charge on substantially all of the Company's
assets. Interest is payable monthly on the loan and was until December 31,
1997 at the rate of 2% above Lloyds Banks' base rate. Interest as from
January 1, 1998 is at the rate of 13% per annum. The terms of the Instar
Loan were amended in August 1997, January 1998 and July 1998.
The terms of the Instar Loan were amended in July 1998 to provide that:
(i) the repayment date is now extended such to accede to a repayment
schedule plan commencing in September 1998 and terminating on receipt of a
final installment payment in late 1999; and
(ii) the loan ( or any part thereof) may be converted, at the option of
the holder, into fully paid shares of common stock at a conversion rate
that may be offered from time to time by the Company to any existing or
potential investor.
F-15
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
On October 31, 1996, CM (UK) entered into a deed of counter-indemnity
("Deed") with Universal, a BVI corporation. The Deed secures the
obligation of CM (UK) to repay Universal if Universal is called upon to
make payment on its transponder guarantee. (See note 8 to Notes to
Consolidated Financial Statements.)
CM (UK)'s obligations under the Deed are guaranteed by the Company and
Onyx, and are secured by a charge on substantially all of the Company's
assets.
Instar and Universal have agreed that their liens on the Company's assets
shall rank parri-passu.
15. SUBSEQUENT EVENTS
On January 9, 1998, CM (UK) borrowed an aggregate of $1,250,000 from
Superstar Ventures Limited ("Superstar"). Such loan was evidenced by two
13% Convertible Secured Promissory Notes (the "Notes") in the original
amounts of $750,000 and $500,000, respectively. Of the aggregate proceeds,
$500,000 was used to repay a loan previously made to CM (UK) by Unbeatable
Investments Limited. The Notes bear interest at the rate of 13% per annum
and are convertible into the Company's Common Stock on the basis of one
share of Common Stock for each $0.50 of outstanding principal and accrued
interest. The Notes however, may not be converted until the Company has
held a shareholders meeting at which its Articles of Association are
amended to increase sufficiently the number of authorized shares of Common
Stock of the Company.
On February 12, 1998, the Company, Unimedia, and Pixel Multimedia Ltd.
("PMM") consummated the transactions contemplated by an agreement executed
on that date and effective as of January 1, 1998. PMM previously owed
Unimedia $2,700,000 for loans made to PMM and for other expenses. As part
of the transaction, Unimedia purchased the outstanding stock of Pixel
Ltd., an Israeli company ("Pixel") from PMM. As part of the transaction,
Pixel also purchased certain software previously developed for Unimedia by
PMM. The purchase price paid to acquire Pixel consisted of: (i)
forgiveness of $1.7 million of the debt owed by PMM to Unimedia and (ii)
the assumption by Pixel (guaranteed by Unimedia and the Company) of
certain PMM debt not exceeding $750,000 due to a financial institution.
Additionally, PMM may receive up to 600,000 shares of the Company's Common
Stock owned by Unimedia if certain performance objectives are achieved by
Pixel. These shares have been pledged by Unimedia to the financial
institution to secure Pixel's debt to the financial institution. Finally,
the remaining $1,000,000 owed by PMM to Unimedia will be forgiven in the
event that certain future performance objectives are achieved by Pixel.
On February 28, 1998, the Mirror Group PLC ("Mirror") sold its 50%
interest in the share capital of Blink to a director of Blink.
On March 23, 1998, MMP, SA ("MMP"), a shareholder of the Company made
available a $2,000,000 Line of Credit ("MMP Line of Credit"), which
carried interest at 13% per annum. The principal and accrued interest is
repayable on December 31, 1998, or earlier if the Company's cash flow
enables repayment. The MMP Line of Credit is convertible at $0.20 per
share.
On March 25, 1998, Superstar loaned the Company an additional $400,000
payable on the same terms as the MMP Line of Credit.
On June 16, 1998, the Company entered into two Memorandum of Understanding
Agreements ("MOU") with AB Groupe ("AB"), (which is the parent company of
MMP) and Superstar to continue to fund the Company's operations. These new
Agreements will provide up to $11.64 million, $5.4 million in the form of
cash investment to be infused over a one year period and $6.24 million
through providing operating services to the Company over a period of two
years. The new funding will initially be in the form of debt to be
automatically converted into shares of common stock at $0.10 cents per
share upon and after approval of an increase in the Company's authorized
capital at the next shareholders meeting, which the Company is obligated
to hold no later than November 30, 1998.
16. RELATED PARTY TRANSACTIONS
In July 1997, the Company paid Unimedia a fee of $240,000 in connection
with the $4.0 million private placement. See Note 14 above.
There were no related party transactions other than in the normal course
of business between the group companies.
F-16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.21 Form of Indemnification Agreement dated July 31, 1997, by and
between the Company and Gilles Assouline and Michel Assouline
10.23 Letter Agreement dated July 1998 between the CM (UK), the Company,
Onyx, Instar and Superstar
10.24 Services Agreement with Groupe AB
10.25 Superstar Note in the face amount of $5.0 million
10.26 Groupe AB Note in the face amount of $6.64 million
21.1 Subsidiaries
27.1 Financial Data Schedule
EXHIBIT 10.21
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made and entered into
this 31st day of July, 1997, between Capital Media Group Limited (the "Company")
and Gilles Assouline and Michel Assouline (collectively, the "Indemnified
Parties").
WHEREAS, the Company has engaged in a private placement of 7,017,543
shares of its authorized, but unissued common stock (the "Offered Shares"), on
the terms set forth in that certain Private Placement Memorandum, dated May 25,
1997, as supplemented by Supplement No. 1 thereto, dated June 25, 1997
(collectively, the "Memorandum");
WHEREAS, Unimedia, S.A. ("Unimedia") subscribed to purchase all of the
Offered Shares, and has transferred a portion of the Offered Shares to certain
third parties; and
WHEREAS, the Company has agreed to indemnify the Indemnified Parties in
certain respects, as enumerated herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
each of the Indemnified Parties against any losses, claims, damages or
liabilities, joint or several, to which the Indemnified Parties may become
subject, under the Securities Act or otherwise, to the extent and only to the
extent such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any statement contained in the
Memorandum, or (ii) the omission or alleged omission to state in the Memorandum
a fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such loss, claim, damage, liability or action.
Notwithstanding the foregoing, the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any of the following: (i) the trading by Unimedia of a portion of the
Offered Shares for ordinary shares of ActivCard S.A. ("ActivCard") and the sale
of such ActivCard shares in the market (unless such action, loss, claim, damage,
or liability arises by reason of a claim arising from the information contained
in the Memorandum); (ii) matters relating to the ownership and/or trading by
Unimedia of ActivCard shares in connection with its business activities,
including claims involving Merrill Lynch, Oradea Inc., Alfonso Lodolo D'Oria or
Roland Pardo, or affiliates of any of such persons; or (iii) matters for which
indemnification is already provided for under Section 9 of that certain
Agreement and Plan of Reorganization, dated as of March 4, 1997, among the
Company, Unimedia and the stockholders of Unimedia (including the Indemnified
Parties), as same has been amended by Amendments 1, 2 and 3 thereof.
2. PROCEDURE. Within five (5) business days after receipt by an
Indemnified Party under this Agreement of notice of the commencement of any
action, such Indemnified Party will,
<PAGE>
if a claim in respect thereof is to be made against the Company under this
Agreement, notify in writing the Company of the commencement thereof; but the
omission to so notify the Company will not relieve the Company from any
liability under this Agreement so long as the Company is not prejudiced by the
failure to so notify. In case any such action is brought against any Indemnified
Party, and it notifies the Company of the commencement thereof, the Company will
be entitled to participate therein, and to the extent that it may wish, to
assume the defense thereof with counsel who shall be to the reasonable
satisfaction of such Indemnified Party. Notwithstanding the foregoing, each
Indemnified Party shall have the right to employ their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of such counsel has been authorized
in writing by the Company in connection with the defense of such action, (ii)
the Company shall not have employed counsel reasonably satisfactory to the
Indemnified Party to take charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
Indemnified Party shall have reasonably concluded and have been so advised in a
written opinion from counsel reasonably satisfactory to the Company that there
may be defenses available to it or them (as to the specific issue for which the
Indemnified Party is being indemnified) which are different from or additional
to those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the Indemnified Party),
in any of which such events such fees and expenses shall be borne by the
Company. Anything in this subsection to the contrary notwithstanding, the
Company shall not be liable for any settlement of any claim or action effected
without its written consent, provided, however, that such consent was not
unreasonably withheld.
This Agreement is made and entered into as of the day and year first
above written.
CAPITAL MEDIA GROUP LIMITED
BY: /s/ CHARLES KOPPEL
--------------------------------
Charles Koppel, President
BY: /s/ STEPHEN KORNFELD
--------------------------------
Stephen Kornfeld, Co-Chairman
INDEMNIFIED PARTIES
/s/ GILLES ASSOULINE
------------------------------------
Gilles Assouline
/s/ MICHEL ASSOULINE
------------------------------------
Michel Assouline
2
EXHIBIT 10.23
Instar Holdings Inc
R.R.E. Commercial Centre
Majuro
Marshall Islands ("Instar")
and
Universal Independent Holding Limited
PO Box 438
Tropic Isle Building
Wickams Cay
Road Town
Tortola
British Virgin Islands ("Universal")
To: Capital Media (UK) Limited
("Capital Media")
and Capital Media Group Limited
("Capital Media Group")
and Onyx Television GmbH
("Onyx")
and Superstar Ventures Limited
("Superstar")
Date: 1998
Dear Sirs
CAPITAL MEDIA GROUP LIMITED
1 We refer to
(i) certain financing arrangements pursuant to which Instar has
made available a loan to Capital Media of US$2,000,000 (the
"Instar Loan") and Universal has received a counter-indemnity
from Capital Media in respect of certain obligations
undertaken by Universal on behalf of Capital Media (the
"Universal Obligations") and in respect of which we were
granted certain guarantees and security by Capital Media,
Capital Media Group and Onyx; and
(ii) a letter of undertaking dated on or about 12 January 1998 and
made between us which you confirm by signing and agreeing to
the terms of this letter is a complete and accurate record of
the arrangements existing between us notwithstanding that the
documentation existing in respect of (i) has not been amended
to reflect such letter. (together the "Documentation")
2 We note that under the Documentation our consent is required to any
amendment of the terms thereto.
3 We hereby confirm that, subject to the matters described in paragraph 4
below, we
<PAGE>
consent to:
(a) the amendment of the Instar Loan such that:
(i) the loan together with all interest whether accruing
or accrued thereon (the "Debt") shall be repaid in 6
instalments of US$50,000 payable on the 15th of each
month commencing on the 15th July 1998 and thereafter
in instalments of US$200,000 on the 15th of each
month until such time as the Debt together with all
obligations (including costs) arising under the
Instar Loan (together the "Instar Obligations") are
discharged in terms of the Instar Loan and certain of
the Documentation, save that in the event Capital
Media and/or Capital Media Group raises any funding
(from whatever source including debt and/or equity)
at any time prior to the repayment in full of the
Instar Obligations in any amount greater than or
equal to US$1,000,000 in addition to the funding of
US$11,640,000 (financed by A.B. Group and/or
Superstar in accordance with the cashflows notified
at the date hereof to Instar committed at the date of
this letter) (the date of receipt of any such funds
being referred to as the "Funding Date");
(A) to the extent not previously amended the
scheduled repayments of US$200,000 shall be
increased to US$250,000 with effect from the
Funding Date;
(B) an amount of the Instar Obligations equal to
US$50,000 multiplied by the number of
payments of US$200,000 made and/or due and
remaining unpaid up to the Funding Date
shall be immediately due and repayable; and
(C) if the amount of funding raised is greater
than an amount of US$1,000,000 an amount of
the Instar Obligations equal to forty per
cent (40%) of the amount raised in excess of
US$1,000,000 shall be immediately due and
repayable;
(ii) Instar's rights to convert the Instar Obligations (or
any part thereof) to shares in Capital Media Group
shall only be at such rate as is offered from time to
time to any existing or potential investors in
Capital Media Group. Instar is to be notified at
least ten business days prior to any Capital Media
Group share offer being closed or in the event there
is no closing date at least 10 business days but not
more than 15 business days prior to the placing
documentation being effected (which for the avoidance
of doubt shall mean the date the investment is made
by the investor and the shares are issued) or such
lesser period as Instar may in its absolute
discretion agree;
(iii) Capital Media shall pay to KPN Telecom (previously
PTT Telecom) all
<PAGE>
amounts as may from time to time be required by KPN
Telecom and/or Universal to reduce and/or discharge
the guarantee in respect of the Transponder Lease
given by Universal in accordance with its terms; and
(iv) Capital Media shall pay all outstanding costs under
the Instar Facility by 31 December 1998 including
/pound sterling/30,000 being the balance of costs
outstanding at such date, as per the invoices issued
to Instar by SJ Berwin & Co prior to such date.
(b) Superstar having the right at any time (subject to reasonable
notice) to pay us an amount equal to all (but not part) of the
obligations (of whatever kind) of Capital Media, Capital Media
Group and Onyx owing to us pursuant to the Documentation and
on payment we shall transfer (so far as we are able) any
security that we have for such obligations.
4 PROVIDED ALWAYS THAT our consent hereunder in respect of the matters
described in paragraphs 3(a) and (b) above is conditional upon, and
shall not be effective until, the date the following conditions are
confirmed in writing by ourselves as satisfied:
(i) Superstar, Capital Media, Capital Media Group and
Onyx executing such documentation as we may require
(including a deed or priority) confirming that any
monies owed to Superstar by Capital Media, Capital
Media Group and Onyx shall rank and be paid out after
satisfaction of all liabilities and obligations (of
whatever type) to ourselves pursuant to the
Documentation by Capital Media, Capital Media Group
and Onyx. For the avoidance of doubt, the deed of
priority will include restrictions (of a type
customarily found in a subordination deed for full
subordination under English law) on Superstar
exercising its rights (without the consent of Instar
and Universal (as the case maybe) pursuant to the
security which it has in respect of Capital Media,
Capital Media Group and Onyx or otherwise against
Capital Media Group, Capital Media and Onyx in
accordance with the priority of Instar and Universal
(as the case maybe) as first chargee of Capital Media
and Capital Media Group;
(ii) execution by Capital Media, Onyx and Capital Media
Group of an amendment letter amending the Instar Loan
as per paragraph 3(a) above:
(iii) confirmation from SJ Berwin & Co that part of the
legal costs of Instar pursuant to its on-going
financing arrangements with Capital Media and Capital
Media Group in the amount of /pound sterling/10,000
have been paid by Capital Media to the client account
of SJ Berwin & Co at Barclays Bank PLC 8/9 Hanover
Square, London Account Number 10644994, Sort Code
20-30-47;
(iv) receipt by Instar of the duly executed original share
certificates relating to
<PAGE>
all the issued shares of Capital Media (the
"Shares"); and
(v) duly executed blank stock transfers in respect of the
Shares.
5 This letter shall be governed by and construed in accordance with
English law and, for the exclusive benefit of ourselves, each of
Capital Media, Capital Media Group, Onyx and Superstar irrevocably
submits to the exclusive jurisdiction of the courts of England and
appoints Stephen Coleman of 16 Allandale Avenue, London N3 3PJ to
accept service of all legal process arising out of or connected with
this letter.
6 Superstar, Capital Media and Capital Media Group confirm that, in
consideration of our consent to the variation to the Documentation
described above, that from the date of this letter they shall not cause
or allow anything to be done which may prejudice the terms of this
letter and or Instar's security for the Instar Loan.
7 It is acknowledged by Capital Media that non-performance (other than by
reason of non-performance by Instar or Universal of their obligations
under this letter) by Superstar, Capital Media, Capital Media Group and
Onyx of any actions required to give effect to the transactions
contemplated by this letter shall be a breach of the terms of the
Instar Loan and constitute an event of default under clause 15 of the
facility letter of 31 October 1996 relating to the Instar Loan.
8 Capital Media shall be liable for all costs and fees of Instar and/or
Universal arising from this letter and/or the actions contemplated by
this letter.
9 This letter maybe executed in any number of counterparts and all of
such counterparts shall be deemed to constitute one instrument.
10 Could you please confirm your agreement to the terms of this letter by
signing and returning the enclosed copy.
Yours faithfully
/s/__________________________
For and on behalf of
Instar Holdings Inc
/s/__________________________
for and on behalf of
Universal Independent Holdings Limited
We confirm our agreement to the terms of this letter.
<PAGE>
/s/
- ---------------------------------
For and on behalf of
Capital Media (UK) Limited
We confirm our agreement to the terms of this letter.
/s/
- ---------------------------------
For and on behalf of
Capital Media Group Limited
We confirm our agreement to the terms of this letter.
/s/
- ---------------------------------
For and on behalf of
Onyx Television GmbH
We confirm our agreement to the terms of this letter.
/s/
- ---------------------------------
For and on behalf of
Superstar Ventures Limited
EXHIBIT 10.24
TRANSLATED FROM THE FRENCH
CONTRACT CONCERNING THE SUPPLY OF TECHNICAL SERVICES
BETWEEN:
MMP, a stock corporation with a capital of FF 840,000, whose registered office
is at 43-45 Avenue Kleber, 75116 Paris, France, listed in the Trade Register of
Paris under No. B 343 096 426, represented by its director, Mr. Denis BORTOT,
HEREINAFTER MMP,
PARTY OF THE FIRST PART,
AND:
ONYX TELEVISION GMBH, whose registered office is at Emil Figge Strasse 80,
Dortmund, Germany, represented by its General Manager, Mr. Michel ASSOULINE,
HEREINAFTER ONYX,
PARTY OF THE SECOND PART.
PREAMBLE
ONYX is a German company and the owner of a television channel specializing in
music programming ("the channel"), distributed by cable and by satellite and
broadcasting in the clear 18 hours a day.
MMP's activity includes, in particular, the supply of audiovisual services.
As a result, the parties have decided to transact an agreement under which MMP
will supply a number of services to ONYX, permitting the channel's transmission
and distribution.
[two sets of initials]
<PAGE>
THE FOLLOWING WAS DECIDED AND AGREED ON
ARTICLE 1: PURPOSE
As of the effective date hereof (such as defined in article 3 below), MMP, or
any company in the AB Group that it elects to substitute for itself, shall
supply the following services:
1-1: A MASTER CONTROL ROOM operating at least 18 hours/day and possibly up to 24
hours/day, making it possible to broadcast the video items furnished by ONYX, as
described in the Technical Annex attached hereto.
It is understood that this Master Control Room will subsequently permit the
direct retransmission of certain programs. Said direct retransmission shall be
available to ONYX only two months after ONYX's request.
1-2: THE COMPRESSION OF THE SIGNAL TO THE DVB STANDARD [MPEG2].
1-3: MULTIPLEXING WITH THE AB BOUQUET.
1-4: THE PERMANENT TRANSMISSION OF THE ONYX PROGRAM MULTIPLEXED IN THIS MANNER
TO A SATELLITE OF THE EUTELSAT OR ASTRA TYPE.
1-5: THE DAILY ALLOCATION, 24 HOURS/DAY, OF THE NECESSARY FREQUENCY RANGE ON A
DIGITAL TRANSPONDER ABOARD A SATELLITE OF THE EUTELSAT TYPE.
THE SERVICES SUPPLIED BY MMP SHALL ALSO INCLUDE:
1-6: THE STORAGE OF THE CASSETTES needed for the operation of the channel from
the Control Room and of MMP's means of transmission.
1-7: THE MONITORING, CONTROL AND MAINTENANCE OF THE FACILITIES.
1-8: A PERMANENT EDP LINK OF THE ISDN TYPE making it possible to load the
PLAYLISTS from the premises of ONYX in Germany (the costs relating to the line
itself being borne by ONYX).
It is expressly understood that the detailed specifications of the service, as
well as the planned schedule of its provision, are annexed hereto and that said
annexes are an integral part of this instrument.
HOWEVER, THE PARTIES GRANT EACH OTHER A TIME EXTENSION, BETWEEN THE DATE OF
EXECUTION HEREOF AND JULY 31, 1998, FOR PURPOSES OF DECIDING WHICH OF THE TWO
PARTIES SHALL SUPPLY THE EQUIPMENT REQUIRED FOR THE SERVICES (AND WHAT TYPE OF
EQUIPMENT SHALL BE SUPPLIED), WHICH IS THE SUBJECT OF ARTICLE 3-1) OF THE
TECHNICAL ANNEX, EXCEPT PARAGRAPHS F), G) AND H).
[two sets of initials]
2
<PAGE>
ARTICLE 2: COMPENSATION
In consideration of the services provided by MMP or by any company in the AB
Group it may elect to substitute for itself, such as detailed in article 1
hereof and in the annexes hereto, ONYX shall pay the net annual lump sum of
US$2,400,000 (two million four hundred thousand U.S. dollars, net of taxes),
payable monthly. This amount may be supplemented by the costs relating to MMP's
supply of the equipment mentioned in point 1-8 above. The parties shall jointly
determine the additional amount billed.
This service shall give rise to the issue, at the end of each month, by MMP or
by any other company in the AB Group it may elect to substitute for itself, of
invoices that shall be payable by ONYX upon receipt, and in any case not more
than 15 days following the receipt thereof.
It is expressly agreed that the compensation due to MMP or to any other company
in the AB Group it may elect to substitute for itself, such as set by the
parties, exclusively concerns the services listed in article 1 hereof and
specified in the Technical Annex.
Accordingly, any request for an additional service, i.e. a service that is not
included in the limited listing under article 1, shall be subject to an
additional invoice by MMP or by any company in the AB Group it may elect to
substitute for itself.
The amount of the additional services shall be defined jointly by the parties.
ARTICLE 3: TERM
3-1: This contract is entered into for an initial effective period of 24 months
("the effective period") as of the date on which this contract shall come into
force, such as shall be set definitively and jointly by the parties.
However, the parties agree, NUNC PRO TUNC, to set the date of October 1, 1998 as
the deadline for the coming into force of the effective period.
It is agreed that the date of October 1, 1998 is susceptible to be pushed back
within a reasonable limit and on the express condition that the party initiating
such modification informs the other party by registered letter 30 days in
advance.
Nevertheless, in the event that one of the parties should be unable to fulfill
its obligations by October 1, 1998 without having been in a position to inform
the other party of said impossibility at least 30 days in advance, the parties
agree to meet in order to find an alternate emergency solution, WHICH, IN ALL
CASES, SHALL COVER THE SERVICES SPECIFIED IN ARTICLE 3-1) G) AND 3-1 H) OF THE
TECHNICAL ANNEX.
In the latter case, the terms and the implementation of the alternate emergency
solution shall give rise to the execution of a rider for purposes of adjusting
the conditions of performance of this contract for a temporary period, i.e.
until the services initially specified are restored.
[two sets of initials]
3
<PAGE>
3-2: At the end of the effective period, this agreement shall be deemed to be
renewed for new periods of 12 months each, subject to the rights of termination
mentioned in article 4 below.
3-3: It is otherwise expressly agreed that, as of the date of execution and
until the effective date hereof, the parties shall be engaged in a period of
preparation whose purpose is to organize the upcoming services.
During said period of preparation, the parties agree to provide help and
assistance to each other.
ARTICLE 4: TERMINATION
4-1: It is expressly agreed that this contract is concluded for an initial
incompressible effective period of 24 months.
Accordingly, in the absence of termination by registered letter with return
receipt requested sent six months prior to the scheduled date of expiration of
the 24 months of the initial effective period, this contract shall be deemed to
be renewed for another 12-month period.
4-2: Past the 24 months of the initial effective period, the parties shall have
the right to cancel this contract each year by means of a registered letter with
return receipt requested mailed at least six months before the anniversary date
of this contract.
4-3: In all cases, should ONYX fail to pay, even only in part, the compensation
due to MMP or to any other company in the AB Group it elects to substitute for
itself, after a formal notice from MMP served by registered letter with return
receipt requested has not produced any effect, this contract shall be
automatically terminated, without prejudice to the damages that MMP will have
the right to claim from ONYX.
4-4: Furthermore, should one of the parties fail to discharge its obligations
arising from the contract and abstain from correcting the situation one month
after a formal notice mailed by registered letter with return receipt requested
to the defaulting party has not produced its effect, this fact shall trigger the
automatic termination of the contract, without prejudice to the damages that may
be claimed.
4-5: Lastly, in case of bankruptcy of either of the contracting parties, this
contract shall be terminated automatically.
ARTICLE 5: OBLIGATIONS OF THE PARTIES
Once the effective period has begun, the parties agree to observe the technical
specifications that have been defined jointly.
[two sets of initials]
4
<PAGE>
ONYX agrees not to ask MMP for modifications concerning the technical system put
into place at the end of the period of preparation, except if said modifications
are minor and have previously been approved by MMP.
MMP shall make its best efforts to ensure the satisfactory performance of the
services subject to this agreement, and may, as necessary, try to find another
solution well-suited to the needs and within the limits hereof. In the context
of the services subject to this agreement, MMP shall therefore have an
obligation of means.
As of the execution hereof, ONYX agrees to inform MMP of all changes that may
occur in its relations with third parties and that may have an effect on the
satisfactory performance of MMP's services.
In a general manner, the parties agree to comply with the laws and regulations
in force during their cooperation.
Accordingly, ONYX agrees to inform MMP of any legal rule, regulation or standard
that may affect the undisturbed performance of this agreement.
ARTICLE 6: LIABILITY
6-1: It is expressly agreed that, barring ill-intentioned actions or faulty
negligence, MMP may not be held liable for any direct or consequential damage,
or any direct or indirect loss of profit sustained by ONYX in the context of the
performance hereof.
Among other things, MMP's liability shall not be involved as a result of cases
of force majeure, including, in particular, natural disasters, riots, strikes,
electrical power breakdowns or dysfunctions that cannot be attributed to MMP,
equipment breakdowns or dysfunctions that cannot be attributed to MMP, and it is
understood that the present list is not exhaustive.
6-2: For its part, ONYX shall be liable vis-a-vis MMP for any third-party's
claim concerning the content or character of the programs furnished by ONYX with
a view to their transmission and broadcast, including, in particular,
infringements of other persons' copyrights.
Since MMP is not liable for the editorial line of the channel, ONYX shall make
its personal business of the content of the programs that it delivers to MMP
with a view to their transmission and broadcast.
ONYX shall bear all the costs sustained by MMP in ensuring its defense against
claims relating to the character and content of the programming, including, in
particular, other persons' copyrights.
Moreover, ONYX shall bear the cost of any judgments handed down against MMP.
[two sets of initials]
5
<PAGE>
Therefore, the parties agree to report to one another all the claims emanating
from third parties alien to this contract that may undermine the undisturbed
performance of the latter.
6-3: It is agreed, NUNC PRO TUNC, that ONYX shall make its personal business of
the transportation of the equipment intended for MMP in connection with the
performance of this contract, and that it shall as a result bear all the costs
pertaining to said transportation and to the insurance of the transported
equipment.
Likewise, ONYX shall bear the cost of the transportation and transportation
insurance made necessary by the return of technically unusable recordings to
ONYX.
MMP shall check all the recordings delivered by ONYX and shall have the right to
modify the programming if it is impossible to broadcast the projected recording
furnished by reason of its poor quality.
Otherwise, MMP's liability may not be involved in the event of any apparent or
hidden defect that affects the equipment supplied by ONYX hereunder and damages
the quality of the service provided by MMP.
6-4: ONYX shall insure, at its own cost and to an adequate extent, the equipment
and the recordings of any kind entrusted to MMP.
ONYX shall subscribe a multi-risk insurance contract, which shall cover, in
particular, without limitation, the risks of fire (and connected risks), water
damage and theft, and its civil liability as operator and professional.
MMP may never be implicated in case of inadequate coverage.
ONYX and its insurers acknowledge that MMP (or any other company in the AB Group
that it may substitute for itself) shall be exempt from any liability within the
limit of the contract's purpose, and agree never to sue or implicate it as
regards:
the physical injuries sustained by persons working on behalf of ONYX on MMP's
premises or by persons introduced on MMP's premises by ONYX;
the accidents that may be caused to movable or physical objects, including
automobiles belonging to ONYX, to third parties introduced on MMP's premises by
ONYX, or to persons working on behalf of ONYX on MMP's premises.
ONYX and its insurers acknowledge that MMP shall also be exempt, within the
limit of the contract's purpose, from any liability concerning theft,
deterioration or damage of any kind, with no exception or reserve, that may
affect, in particular, the apparatus, accessories, recordings or any other
objects or animals brought to, or introduced on, MMP's premises by ONYX or by
the personnel working on behalf of ONYX on MMP's premises.
6-5: Lastly, ONYX certifies that there does not exist any contract with third
parties susceptible to undermine MMP's performance of its services such as are
specified herein.
[two sets of initials]
6
<PAGE>
ARTICLE 7: TRANSFERABILITY
This contract is concluded in consideration of the person.
Consequently, the parties hereto shall refrain from assigning the benefit of
this contract to a third-party company without the other party's prior approval.
However, it is agreed that MMP may transfer the benefit of this contract to any
company in the AB Group with no prior formality being required.
ARTICLE 8: CONDITION PRECEDENT
This contract shall take effect on the express condition that it shall have been
accepted by the Board of Directors of MMP's parent company, the AB Group, which
Board shall meet by August 15, 1998 at the latest.
In the absence of such acceptance, the parties shall meet for the purpose of
adapting the present contract in accordance with any recommendations made by
said Board.
ARTICLE 8: CONFIDENTIALITY
Each party shall refrain from disclosing the content of this contract to third
parties, and agrees to treat as strictly confidential all the business,
technical and financial information received from the other party within the
framework of this contract, unless otherwise previously agreed to in writing by
said other party.
This prohibition may not apply to the requests made by any administration,
particularly the tax administration, and to the court authorities which make
valid demands to this effect.
ARTICLE 9: DISPUTES
The laws applicable to this contract are the laws of France.
Any dispute concerning the creation, performance or interpretation of this
contract shall be within the jurisdiction of the French courts, and shall be
referred to the courts of Paris, in particular.
ARTICLE 10: ELECTION OF DOMICILE
Each of the parties agrees to elect domicile at the address of its registered
office.
However, for purposes of simplifying communications between the parties, it is
agreed that any correspondence useful to ONYX shall be sent both to the address
of its registered office and to its legal representative, Mr. Michel ASSOULINE,
at the following address: 2 Rue du Nouveau Bercy, 94260 Charenton-le-Pont,
France.
7
<PAGE>
Done at Paris on July 27, 1998 in two original copies
/s/ /s/
For ONYX For MMP
(signature) (signature)
8
EXHIBIT 10.25
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED
OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
10% CONVERTIBLE PROMISSORY NOTE
$5,000,000 As of July 24, 1998
FOR VALUE RECEIVED, and intending to be legally bound hereby, CAPITAL
MEDIA GROUP LIMITED, a Nevada corporation (hereinafter referred to as "Maker"),
hereby promises to pay, on or before July 31, 1999 (the "Maturity Date"), in
lawful money of the United States to the order of [Superstar Ventures Limited]
(hereinafter referred to as "Holder") the principal sum of FIVE MILLION DOLLARS
AND NO/100 ($5,000,000), as adjusted pursuant to the terms hereof, including
interest on the outstanding principal balance from the date hereof as calculated
below.
The Maker acknowledges receipt of ONE MILLION THREE HUNDRED THOUSAND
DOLLARS ($1,300,000) received on or about June 1998, as part of the total
principal sum referred to in this Note and the Holder has by execution of this
Note agreed to advance the balance of the principal sum to the Maker in
instalment payments payable over one year in manners as the Holder shall, in its
absolute discretion think fit.
1. GENERAL. Interest shall accrue on the unpaid principal balance of
this Note at the rate of interest of Ten Percent (10%) per annum (the "Interest
Rate"). Interest shall be computed on the basis of a 365 day year and the actual
number of days elapsed with daily rests. The Maker shall have the right to
prepay the Note together with all accrued interest upon not less than five (5)
working days notice to Holder giving it the opportunity during such five (5)
working day period to convert this Note into shares of the Common Stock of
Maker, as described in Section 2 hereof. All prepayments hereon shall be applied
(i) first, to any accrued and unpaid interest, and (ii) second, to the principal
amount outstanding under this Note.
Interest accrued from the date hereof on the outstanding principal
balance of the Note shall be payable upon the earlier of (i) the Maturity Date
or (ii) upon acceleration of all amounts due and owing hereunder in accordance
with the terms hereinafter set forth.
Anything herein to the contrary notwithstanding, (a) after maturity,
whether by acceleration or otherwise, and whether prior to or after a judgement
against the Maker, or (b) in the happening of an event of Default (herein
defined), the rate of interest shall be five percent (5%) per annum plus the
Interest Rate (the "Default Rate"). The Default Rate shall continue in effect
until payment of all amounts due and payable pursuant hereto or until the event
of Default shall have been cured, as applicable.
1
<PAGE>
Notwithstanding any provision contained herein to the contrary, the
total liability of Maker for payment of interest pursuant hereto, including late
charges, shall not exceed the maximum amount of such interest permitted by law
to be charged, collected or received from Maker, and if any payments by Maker
include interest in excess of such maximum amount, Holder shall apply such
excess to the reduction of the unpaid principal amount due pursuant hereto, or
if none is due, such excess shall be refunded to Maker after deduction of all
costs and charges incurred by the Holder.
All payments of principal and interest shall be made in immediately
available funds at the address of Holder or at such other place as shall be
designated by the Holder.
2. SECURITY AND SUBORDINATION As Security for the performance of
Maker's obligations under this Note, Maker hereby grants to Holder a security
interest, on the same collateral upon which Instar Holdings Inc. ("Instar") has
been granted under that certain Facility Agreement dated October 31st, 1996 by
and between Maker and Instar and so amended between Instar and Superstar
Ventures Limited ("Superstar") in an Amendment Agreement dated on or about
January 12,1998. The security is to rank after the security collateral upon
which Instar and Superstar has been granted by the Maker pursuant to the
Facility Agreement and Amendment Agreement, and shall in addition rank after the
rights and obligations granted by the Maker pursuant to the Line of Credit
Agreements between MMP, SA and Superstar Ventures Limited dated March 23rd, 1998
and March 24th, 1998 respectively. Additionally, as further security for this
loan, Maker hereby pledges to Holder its interest in the shares of Common Stock
of Unimedia, S.A. which it owns. Maker warrants that it has full and unfettered
rights to grant such security and that due notice, if any, has been given to the
appropriate parties.
3. CONVERTIBILITY. The outstanding principal and accrued interest under
this Note shall deem to be converted into fully-paid and non-assessable shares
of Common Stock of the Maker at the rate of one (1) share of Common Stock for
each Ten Cents, ($0.10) of outstanding principal and accrued interest hereunder
(as may be adjusted, the "Note Conversion Rate") upon the Maker's shareholders
having approved (the "Stockholder Approval") an amendment to the Corporation's
Articles of Incorporation increasing the number of authorized shares of Common
Stock of the Corporation by at least that number of shares of Common Stock into
which outstanding shares of Series A Preferred Stock of Maker and outstanding
notes (including this note) are then convertible. Following Stockholder Approval
and until this Note is duly surrendered by the Holder in exchange for Common
Stock, (A) the Note shall be deemed to represent only the equivalent number of
shares of Common Stock and rights appurtenant thereto into which this Note has
been converted, and (B) no principal or accrued interest under this Note that
has been so converted shall continue to be outstanding for any purposes, whether
or not the note has physically been presented for cancellation. The Holder shall
subject to Sub-Clause f. hereof have the absolute discretion to assign all its
rights under the converted Common Stock and the Maker shall procur all
appropriate consents approving such assignment or transfer of Holder's rights.
2
<PAGE>
a. The Note Conversion Rate shall be subject to adjustment from
time to time in certain instances as hereinafter provided.
Each adjustment of the Note Conversion Rate shall be rounded
to the nearest four decimal places. The Note Conversion Rate
shall be at Maker's cost and subject to adjustment from time
to time as follows:
(i) Only with Holder's written consent and on such terms
as Holder shall in its absolute discretion shall
think fit, if the maker shall at any time pay a
dividend or distribution on Common Stock in Common
Stock, subdivide its outstanding shares of Common
Stock into a larger number of shares, or combine its
outstanding shares of Common Stock into a smaller
number of shares, the Note Conversion Rate in effect
immediately prior thereto shall be adjusted so that
the then outstanding principal and accrued interest
of this Note shall thereafter be convertible into the
number of shares of Common Stock which the holder of
this Note would have been entitled to receive after
the happening of any of the events described above
had such outstanding amounts been converted
immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph shall
become effective retroactively to the record date in
the case of a dividend and shall become effective on
the effective date in the case of subdivision or
combination.
(ii) Subject to the conditions stated in the preceding
sub-clause and in case of any capital reorganization
or any reclassification of the capital stock of the
Maker or in case of the consolidation or merger of
the Maker with another corporation or in the case of
any sale or conveyance of all or substantially all of
the property of the Maker, the outstanding principal
and accrued interest of this Note shall thereafter be
convertible into the number of shares of stock or
other securities or property (including cash)
receivable upon such capital reorganization,
reclassification of capital stock, consolidation,
merger, sale or conveyance, as the case may be, by
the holder of the number of shares of Common Stock
into which such outstanding amounts immediately prior
to such capital reorganization, reclassification of
capital stock, consolidation, merger, sale of
conveyance; and, in any case, appropriate adjustment
(as determined by the Board of Directors) shall be
made in the application of the provisions herein set
forth with respect to rights and interests thereafter
of the Holder of this Note to the end that the
provisions set forth herein (including the specified
changes in and other adjustments of the Note
Conversion Rate) shall thereafter be applicable, as
nearly as may be reasonably possible, in relation to
any shares of capital stock or other securities or
other property thereafter deliverable upon the
conversion into Common Stock of this Note.
3
<PAGE>
b. The Maker shall as soon as practical upon Stockholder Approval
and the filing of the appropriate Articles of Amendment
formalizing the increase in the number of authorized shares of
Common Stock, deliver certificates representing the shares
issuable and available out of its authorized and unissued
Common Stock, for the conversion of this Note as provided
herein
c. The Maker shall procur the approval of its Board of Directors
to register Holder or its nominee as the holder of the Common
Stock should such approval be necessary.
d. Once the Note has been converted as provided herein and all
formalities in registering the Holder or its nominee as the
holder of the Common Stock has been completed, the Holder
shall promptly surrender this Note at the office appointed as
aforesaid, which Note shall be duly marked "CANCELLED".
The Maker will, as soon as practicable after conversion of this Note,
issue and deliver at the office appointed as aforesaid, to the Holder,
certificates for the number of full shares of Common Stock to which such person
shall be entitled as aforesaid, together with any cash adjustment for any
fraction of a share as hereinafter stated, if not evenly convertible. Subject to
the following provisions of this paragraph, such conversion shall be deemed to
have been made as of the date on which Articles of Amendment formalising the
increase in the Company's authorized capital stock are filed with the
appropriate governmental authorities in Nevada, and the person or persons
entitled to receive the Common Stock issuable upon conversion of this Note shall
be treated for all purposes as the record holder or holders of such Common Stock
as of such date.
e. No fraction of shares of Common Stock are to be issued upon
conversion, but in lieu thereof the Maker will pay therefor in cash a sum based
on the fair market value of the Common Stock, as determined by a resolution of
the Board of Directors are agreed by Holder.
f. The certificates representing the Common Stock issued upon
conversion of this Note shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("Act"), and may not be offered or
sold except (i) pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities), or (iii)
upon the delivery by the holder to the Company of an opinion or counsel,
reasonably satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available."
g. The Maker agrees, that from the date of this Note until the date
upon which Shareholders Approval is given, not to issue any convertible options
that could be converted into more than of 150,000,000 shares of Common Stock
inclusive of those issuable pursuant to this Note and the Note due to AB Groupe
for services and subscription, without the written consent of the Holder.
4
<PAGE>
4. DEFAULT. An Event of Default shall be deemed to occur if one or more
of the following events shall occur prior to conversion (as set forth in section
3 above) of the amounts due under this Note into shares of Common Stock:
a. A default in the due and punctual payment of the amounts owed
hereunder when and as such amounts shall become due and
payable:
b. A default in the due observance or performance of any covenant
or agreement on the part of the Maker to be observed or
performed pursuant to the terms hereof, if such default shall
continue uncured for ten (10) days afters written notice
specifying such default shall have been given to Maker;
c. Maker shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator for itself or any of its
properties or assets, (ii) be unable or admit in writing its
inability to pay its debts as they mature, (iii) make a
general assignment for the benefit of its creditors, (iv)
commence a voluntary case for relief as a debtor under the
United States Bankruptcy Code or file a petition or an answer
seeking reorganization or an arrangement with creditors or to
take advantage of any applicable law respecting bankruptcy,
reorganization, insolvency, readjustment of debts, dissolution
or liquidation, which case or petition remains undismissed for
sixty (60) days after the entry thereof, (v) file any answer
admitting the material allegations of a petition filed against
it in any proceeding under any such applicable law or (vi)
take any action for the purpose of effecting any of the
foregoing;
d. Any involuntary case under the United States Bankruptcy Code
(or such code of another jurisdiction as may be applicable to
Maker) being commenced against Maker or a petition being filed
against Maker seeking similar relief under any other
applicable law and such case or petition remaining undismissed
for sixty (60) days after the entry thereof.
e. A material change in the management of Maker, Onyx Television
GmbH ("Onyx") or Unimedia, S.A.;
f. A material change in the strategic orientation of Maker or
Onyx including a decision to abandon the application of a
second licence for Onyx;
g. A breach in the obligations of AB Groupe (or its subsidiary,
MMP, S.A.) of their obligations to fund and provide services
to Maker and Onyx; or by Instar or Universal of their
obligations under that certain letter agreement, dated July
17, 1998;
h. The failure of the Maker to hold a special meeting of its
stockholders and to seek Stockholder Approval to the amendment
to its articles of incorporation described in Section 3, on or
before November 30, 1998; or
i. The failure of the Maker in satisfying all the pre-requisite
conditions as set out at the top of page 1 of this Note, on or
before November 30, 1998.
5
<PAGE>
j. The failure of the Maker to hold a special meeting of its
stockholders to seek Stockholder Approval to the amendment to
its articles of incorporation described in Section 3, on or
before November 30, 1998.
Upon the occurrence of an Event of Default or at any time thereafter
the Holder may declare the entire unpaid principle balance of this Note and
interest accrued thereon which shall be immediately due and payable at that
time. Additionally, to the extent permitted by law and subject to Section 1
hereof, Maker shall also pay Holder a penalty of 20% per annum calculated in the
aforesaid manners of the principal amount of the loan.
5. REPRESENTATIONS. Maker represents and warrants to Holder as follows:
(i) the execution and delivery of this Note and the performance by Maker of its
obligations hereunder have been duly authorized by all necessary corporate
action on part of Maker; and (ii) this Note has been duly executed and delivered
by Maker and constitutes the legal, valid, binding and enforceable obligation of
the Maker, enforceable in accordance with its terms.
6. MISCELLANEOUS. All notices given under this Note shall be by
personal service or by overnight courier service or by first class mail, postage
prepaid, return receipt requested, to the parties at the following addresses:-
If to Maker:
Capital Media Group Limited
C/o 2 rue du nouveau Bercy
94220 Charenton
France
Attention: Gilles Assouline, President and Chief Executive Officer
If to Holder:
Superstar Ventures Limited
or to such other addresses as may be specified by like notice, and shall be
deemed to have been duly given or made three days after delivered or deposited
in the mails as aforesaid or one day after delivery to an overnight courier, if
next day delivery is so requested and is so available and such delivery is so
effectuated.
Maker hereby waives presentment for payment, demand, notice of
non-payment, notice of protest and protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, dishonor or
enforcement of the payment of this Note.
6
<PAGE>
Any failure by the Holder to insist upon the strict performance by the
Maker of any of terms and provisions hereof shall not be deemed to be a waiver
of any of the terms and provisions hereof, and the Holder, notwithstanding any
such failure, shall have the right thereafter to insist upon the strict
performance by the Maker of any and all terms and provisions hereof to be
performed by the Maker.
This instrument shall be construed according to and governed by the
laws of the England without regard to any laws as to conflict of laws and the
parties hereto submit to the exclusive jurisdiction of the English Court. If any
of the provisions or terms of this note, or any instrument securing payment
hereof, shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not effect any other of the terms hereof or
of such other instrument, and this Note and such other instrument shall be
construed as if such unenforceable term had never been contained herein or
therein.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as a Deed as of
the date first written above.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
------------------------------------
Gilles Assouline, President, Chairman and CEO
By: /s/ MICHEL ASSOULINE
------------------------------------
Michel Assouline, Director
Terms approved and agreed to
This 24th day of July 1998.
Superstar Ventures Limited
By: /s/ DAVID HO
------------------------------
7
EXHIBIT 10.26
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED
OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
10% CONVERTIBLE PROMISSORY NOTE
$6,640,000 As of August 13, 1998
FOR VALUE RECEIVED, and intending to be legally bound hereby, CAPITAL
MEDIA GROUP LIMITED, a Nevada corporation (hereinafter referred to as "Maker"),
hereby promises to pay, on October 31, 2000 (the "Maturity Date"), in lawful
money of the United States to the order of MMP, S.A. (hereinafter referred to as
"Holder") the principal sum of SIX MILLION SIX HUNDRED and FORTY THOUSAND
DOLLARS AND NO/100 ($6,640,000), as adjusted pursuant to the terms hereof,
including interest on the outstanding principal balance from the date hereof as
calculated below.
This Note acknowledges receipt of FOUR HUNDRED THOUSAND DOLLARS
($400,000) received in June 1998 as part of the total principal sum referred to
in this Note and the Holder has by execution of this Note agreed to advance the
sum of $1,440,000 of the principal sum to the Maker in monthly instalment
payments of $60,000 receivable by the Maker over a period of two years; and in
addition to supply broadcast services to a subsidiary company of the Maker
pursuant to the terms of the Services Agreement entered into on July 27, 1998
(the "Services Agreement"), for value representing $4,800,000 being the balance
of the principal sum, in monthly instalment values of $200,000 receivable by the
Maker over a period of two years.
1. GENERAL. Interest shall accrue on the unpaid principal balance of
this Note at the rate of interest of Ten Percent (10%) per annum (the "Interest
Rate"). Interest shall be computed on the basis of a 365 day year and the actual
number of days elapsed. The Maker shall have the right to prepay the Note upon
five (5) days notice to Holder giving it the opportunity during such five (5)
day period to convert this Note into shares of the Common Stock of Maker, as
described in Section 2 hereof. All prepayments hereon shall be applied (i)
first, to any accrued and unpaid interest, and (ii) second, to the principal
amount outstanding under this Note.
Interest accrued from the date hereof on the outstanding principal
balance of the Note shall be payable upon the earlier of (i) the Maturity Date
or (ii) upon acceleration of all amounts due and owing hereunder in accordance
with the terms hereinafter set forth.
1
<PAGE>
Anything herein to the contrary notwithstanding, (a) after maturity, whether by
acceleration or otherwise, and whether prior to or after a judgement against the
Maker, or (b) during the continuation of an event of Default (herein defined),
the rate of interest shall be five percent (5%) per annum plus the Interest Rate
(the "Default Rate"). The Default Rate shall continue in effect until payment of
all amounts due and payable pursuant hereto or until the event of Default shall
have been cured, as applicable.
Notwithstanding any provision contained herein to the contrary, the
total liability of Maker for payment of interest pursuant hereto, including late
charges, shall not exceed the maximum amount of such interest permitted by law
to be charged, collected or received from Maker, and if any payments by maker
include interest in excess of such maximum amount, Holder shall apply such
excess to the reduction of the unpaid principal amount due pursuant hereto, or
if none is due, such excess shall be refunded to Maker.
All payments of principal and interest shall be made in immediately
available funds at the address of Holder or at such other place as shall be
designated by the Holder.
2. SECURITY AND SUBORDINATION As Security for performance of Maker's
obligations under this Note, Maker hereby grants to the Holder a security
interest, on the same collateral upon which Instar Holdings Inc. ("Instar") has
been granted under that certain Facility Agreement dated October 31, 1996 by and
between Maker and Instar and so amended between Instar and Superstar Ventures
Limited ("Superstar") in an Amendment Agreement dated July 17, 1998. The
security is to rank after the security collateral upon which Instar and
Superstar has been granted by the Maker pursuant to the Facility Agreement and
Amendment Agreement, and shall in addition rank after the rights and obligations
granted by the Maker pursuant to the Line of Credit Agreements between MMP,SA
and Superstar Ventures Limited dated March 23, 1998 and March 24, 1998
respectively.
3. CONVERTIBILITY. The outstanding principal and accrued interest under
this Note shall automatically convert into fully-paid and non-assessable shares
of Common Stock of the Maker at the rate of one (1) share of Common Stock for
each Ten Cents, ($0.10) of outstanding principal and accrued interest hereunder
(as may be adjusted, the "Note Conversion Rate") at such time as Maker's
shareholders have approved (the "Stockholder Approval") an amendment to the
Corporation's Articles of Incorporation increasing the number of authorized
shares of Common Stock of the Corporation by at least that number of shares of
Common Stock into which outstanding shares of Series A Preferred Stock of Maker
and outstanding Notes are then convertible. Following Stockholder Approval and
until this Note is duly surrendered by the Holder in exchange for Common Stock,
(A) the Note shall be deemed to represent only the equivalent number of shares
of Common Stock and rights appurtenant thereto into which this Note has been
converted, and (B) no principal or accrued interest under this Note shall
continue to be outstanding for any purposes, whether or not the Note has
physically been presented for cancellation.
a. The Note Conversion Rate shall be subject to adjustment from time to
time in certain instances as hereinafter provided. Each adjustment of
the Note Conversion Rate shall be rounded to the nearest four decimal
places.
b. The Note Conversion Rate shall be subject to adjustment from time to
time as follows:
2
<PAGE>
(i) If the maker shall at any time pay a dividend or distribution
on Common Stock in Common Stock, subdivide its outstanding
shares of Common Stock into a larger number of shares, or
combine its outstanding shares of Common Stock into a smaller
number of shares, the Note Conversion Rate in effect
immediately prior thereto shall be adjusted so that the then
outstanding principal and accrued interest of this Note shall
thereafter be convertible into the number of shares of Common
Stock which the holder of this Note would have been entitled
to receive after the happening of any of the events described
above had such outstanding amounts been converted immediately
prior to the happening of such event. An adjustment made
pursuant to this subparagraph shall become effective
retroactively to the record date in the case of a dividend and
shall become effective on the effective date in the case of
subdivision or combination.
(ii) In case of any capital reorganization or any reclassification
of the capital stock of the Maker or in case of the
consolidation or merger of the Maker with another corporation
or in the case of any sale or conveyance of all or
substantially all of the property of the Maker, the
outstanding principal and accrued interest of this Note shall
thereafter be convertible into the number of shares of stock
or other securities or property (including cash) receivable
upon such capital reorganization, reclassification of capital
stock, consolidation, merger, sale or conveyance, as the case
may be, by the holder of the number of shares of Common Stock
into which such outstanding amounts were convertible
immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale
of conveyance; and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to
rights and interests thereafter of the Holder of this Note to
the end that the provisions set forth herein (including the
specified changes in and other adjustments of the Note
Conversion Rate) shall thereafter be applicable, as nearly as
may be reasonably possible, in relation to any shares of
capital stock or other securities or other property thereafter
deliverable upon the conversion into Common Stock of this
Note.
c. The Maker shall, upon Stockholder Approval and the filing of the
appropriate Articles of Amendment formalizing the increase in the
number of authorized shares of Common Stock, deliver certificates
representing the shares issuable and available out of its authorized
and unissued Common Stock, for the conversion of this Note as provided
herein.
d. Once the Note has been converted as provided herein, the Holder shall
promptly surrender this Note at the office appointed as aforesaid,
which Note shall be duly marked "CANCELLED".
3
<PAGE>
The Maker will, as soon as practicable after such surrender of this
Note for conversion, issue and deliver at the office appointed as aforesaid, to
the Holder, certificates for the number of full shares of Common Stock to which
such person shall be entitles as aforesaid, together with a cash adjustment for
any fraction of a share as hereinafter stated, if not evenly convertible.
Subject to the following provisions of this paragraph, such conversion shall be
deemed to have been made as of the date on which Articles of Amendment
formalizing the increase in the Company's authorized capital stock are filed
with the appropriate governmental authorities in Nevada, and the person or
persons entitled to receive the Common Stock issuable upon conversion of this
Note shall be treated for all purposes as the record holder or holders of such
Common Stock on such date.
e. No fraction of shares of Common Stock are to be issued upon conversion,
but in lieu thereof the Maker will pay therefor in cash a sum based on
the fair market value of the Common Stock, as determined by a
resolution of the Board of Directors.
f. The certificates representing the Common Stock issued upon conversion
of this Note shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("Act"), and may not be offered or
sold except (i) pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities), or (iii)
upon the delivery by the holder to the Company of an opinion or counsel,
reasonably satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available."
4. DEFAULT. An Event of Default shall be deemed to occur if
one or more of the following events shall occur:
a. A default in the due and punctual payment of the amounts owed
hereunder when and as such amounts shall become due and
payable:
b. A default in the due observance or performance of any covenant
or agreement on the part of the Maker to be observed or
performed pursuant to the terms hereof, if such default shall
continue uncured for ten (10) days afters written notice
specifying such default shall have been given to Maker;
4
<PAGE>
c. Maker shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator for itself or any of its
properties or assets, (ii) be unable or admit in writing its
inability to pay its debts as they mature, (iii) make a
general assignment for the benefit of its creditors, (iv)
commence a voluntary case for relief as a debtor under the
United States Bankruptcy Code or file a petition or an answer
seeking reorganization or an arrangement with creditors or to
take advantage of any applicable law respecting bankruptcy,
reorganization, insolvency, readjustment of debts, dissolution
or liquidation, which case or petition remains undismissed for
sixty (60) days after the entry thereof, (v) file any answer
admitting the material allegations of a petition filed against
it in any proceeding under any such applicable law or (vi)
take any action for the purpose of effecting any of the
foregoing; or
d. Any involuntary case under the United States Bankruptcy Code
(or such code of another jurisdiction as may be applicable to
Maker) being commenced against Maker or a petition being filed
against Maker seeking similar relief under any other
applicable law and such case or petition remaining undismissed
for sixty (60) days after the entry thereof.
Upon the occurrence of an Event of Default or at any time thereafter
the Holder may declare the entire unpaid principle balance of this Note and
interest accrued thereon to be immediately due and payable ("the balance due").
5. REPRESENTATIONS. Maker represents and warrants to Holder as follows:
(i) the execution and delivery of this Note and the performance by Maker of its
obligations hereunder have been duly authorized by all necessary corporate
action on part of Maker; and (ii) this Note has been duly executed and delivered
by Maker and constitutes the legal, valid, binding and enforceable obligation of
the Maker, enforceable in accordance with its terms.
6. MISCELLANEOUS. All notices given under this Note shall be by
personal service or by overnight courier service or by first class mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
If to Maker:
Capital Media Group Limited
C/o 2 rue du nouveau Bercy
94220 Charenton
France
Attention: Gilles Assouline, President and Chief Executive Officer
If to Holder:
MMP, SA
144 Avenue du President Wilson
93200 La Plaine - Saint Denis
France
Attention: Jean-Francois Klein, Chief Financial Officer of AB Groupe
5
<PAGE>
or to such other addresses as may be specified by like notice, and shall be
deemed to have been duly given or made three days after delivered or deposited
in the mails as aforesaid or one day after delivery to an overnight courier, if
next day delivery is so requested and is so available and such delivery is so
effectuated.
Maker hereby waives presentment for payment, demand, notice of
non-payment, notice of protest and protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, dishonor or
enforcement of the payment of this Note.
Any failure by the Holder to insist upon the strict performance by the
Maker of any of terms and provisions hereof shall not be deemed to be a waiver
of any of the terms and provisions hereof, and the Holder, notwithstanding any
such failure, shall have the right thereafter to insist upon the strict
performance by the Maker of any and all terms and provisions hereof to be
performed by the Maker.
This instrument shall be construed according to and governed by the
laws of the England without regard to any laws as to conflict of laws. If any of
the provisions or terms of this note, or any instrument securing payment hereof,
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not effect any other of the terms hereof or of such other
instrument, and this Note and such other instrument shall be construed as if
such unenforceable term had never been contained herein or therein.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of the date
first written above.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
---------------------------------
Gilles Assouline, President, Chairman and CEO
By: /s/ MICHEL ASSOULINE
---------------------------------
Michel Assouline, Director and Chief Operating Officer
Terms approved and agreed to
This 13th day of August 1998.
MMP, SA
By: /s/ JEAN-FRANCOIS KLEIN
-------------------------
Jean-Francois Klein
6
EXHIBIT 21
SUBSIDIARIES
------------
Capital(UK) Media (UK) Limited 100.0%
Onyx Television GmbH (Germany) 100%
Blink TV Limited, a U.K. joint venture 50%
Tinerama Investments AG* (Luxembourg) 51%
Unimedia, S.A. (France) 81.6%
TopCard S.A. 90%
Pixel, Ltd. 100%
- ----------------------
* Tinerama Investments AG owns 61% of five Romanian corporations:
Tinerama, Sadcom, Tiporama, Ion Escu and Radio Tinerama.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 395,695
<SECURITIES> 0
<RECEIVABLES> 1,219,186
<ALLOWANCES> 11,788
<INVENTORY> 25,660
<CURRENT-ASSETS> 2,417,272
<PP&E> 1,020,818<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,905,983
<CURRENT-LIABILITIES> 11,931,773
<BONDS> 0
0
0
<COMMON> (3,927,770)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,905,983
<SALES> 2,429,275
<TOTAL-REVENUES> 2,429,275
<CGS> 0
<TOTAL-COSTS> 20,865,264
<OTHER-EXPENSES> (44,684)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (244,694)
<INCOME-PRETAX> (18,976,917)
<INCOME-TAX> 1,390
<INCOME-CONTINUING> (18,871,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,871,065)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
<FN>
- ----------
<F1> Net of depreciation.
</FN>
</TABLE>
